On Thursday, October 20, the Federal Reserve Bank of Philadelphia reported manufacturing in its district edged down in the month of October from the previous month.
The index for current manufacturing activity in the Philly Fed’s region declined to 9.7 in October from 12.8 in the month of September. Any reading above zero on the current manufacturing activity index means there’s improvement, and any reading below zero suggests conditions are worsening for manufacturers. (Source: “October 2016 Manufacturing Business Outlook Survey,” Federal Reserve Bank of Philadelphia, October 20, 2016.)
Advertisement
The index for current manufacturing activity in the Philly Fed’s region has been in positive territory for the past three months. In July it stood at negative 2.9.
The current activity and the outlook indices are created by surveying several companies in the Philadelphia Federal Reserve district and by asking respondents to rate general business conditions; both current and future expectations.
Businesses in the region witnessed an increase in new orders, and shipments improved. But inventories, delivery times, and unfilled orders remained weak in October.
Looking at the outlook of businesses in the Philadelphia Federal Reserve district; firms remain optimistic for the next six months, but their confidence is slipping. The index tracking their outlook declined to 32.6 in October from 37.5 in September.
Of the firms surveyed, about 45% of them expect an increase in business activity, and 52% expect their new orders will increase in the next six months. Approximately 32% of the companies surveyed in the Philadelphia Federal Reserve district expected employment to increase in the next six months, and six percent expected to cut their labor force.
Why do economists and investors pay attention to activity in the Philadelphia Federal Reserve district?
This data acts as a leading indicator. The other Federal Reserve banks also report the business conditions in their areas. Investors and economists use this information to get early insights on what’s happening in the overall U.S. economy. If Federal Reserve banks’ districts are showing dismal growth, it could mean the overall U.S. economy is struggling to grow.
The Federal Reserve Bank of Philadelphia will release the November business activity for the region report on November 17, 2016 at 8:30 a.m. ET. 6
