Philadelphia Fed’s Factory Index Decreases to 11.5
Manufacturing in the Philadelphia region expanded at a slower pace this month, a reminder that the recovery from the deepest recession since the 1930s will be gradual.
The Federal Reserve Bank of Philadelphia’s general economic index dropped to 11.5, lower than forecast, from a September reading of 14.1 that was the highest since June 2007, figures from the bank showed today.
Factories have been slow to rev up output as excess capacity, mounting joblessness and the wind-down of stimulus measures such as “cash-for-clunkers” point to an uneven rebound in demand. Even so, inventories near record-low levels set the stage for an eventual pickup in production when consumer spending strengthens.
“Manufacturing is continuing to expand, with factories increasing their production and inventories not being liquidated as fast as before,” said David Semmens, an economist at Standard Chartered Bank in New York. “While the corner has been turned, firms will look for a pick-up in final demand beyond the second half of 2009 before becoming too optimistic.”
Economists forecast the Philadelphia index would drop to 12, according to the median of 55 forecasts in a Bloomberg News survey. Estimates ranged from 8 to 17.
Manufacturers were less upbeat about the future, today’s report showed. Expectations for the next six months fell to 39.8 from 47.8. Factory activity nationwide accounts for about 12 percent of the U.S. economy, the world’s largest.
New York Factories
Manufacturing in the New York region expanded in October for a third straight month, reinforcing signs that factories are helping pull the economy out of the worst recession in seven decades.
The Fed Bank of New York’s general economic index soared to 34.6, the highest since mid-2004, from 18.9 in September, the bank said today. Readings above zero for the Empire State index signal manufacturing is growing.
The Philadelphia Fed’s index of new orders rose to 6.2 from 3.3 the prior month, while the shipments index decreased to 3.3 from 8.2.
The measure of inventories dropped to minus 31.8 from minus 18.1. A negative number means stockpiles are shrinking.
The report showed the employment index improved to minus 6.8 compared with minus 14.3 in September.
The gauge of prices paid came in at 21.3 after 14.9 the prior month, and an index of prices received was minus 4.3 after minus 10.6.
Stockpiles
The headline index isn’t composed of the individual measures and some economists consider it a gauge of business sentiment.
A record reduction in stockpiles in the first half of this year will help factories expand and boost the recovery in manufacturing. The economy will grow at a 2.4 percent annual rate from October through December, after a 3.2 percent pace in the prior three months, according to the median estimate of economists in a Bloomberg survey taken this month.
Automakers are among manufacturers that have benefited from the government’s “cash-for-clunkers” program, which lifted car sales by giving incentives to consumers to trade in older vehicles for new, more fuel-efficient ones.
General Motors Co. said Oct. 7 that it plans to build 655,000 vehicles in North America during the fourth quarter to boost output to match increasing demand.
Retail Sales
Commerce Department data yesterday showed sales at retailers fell 1.5 percent last month, following a 2.2 percent increase in August, as the car-purchase incentive expired. Sales excluding automobiles climbed 0.5 percent.
The unemployment rate may exceed 10 percent by the first quarter of 2010, according to the Bloomberg survey of economists this month. Job losses accelerated in September to 263,000, and the jobless rate rose to 9.8 percent.
At the same time, a Labor Department report today showed the cost of living rose at a slower pace in September, indicating inflation will not be a threat as the economy recovers. Another report, also from the department, showed the number of Americans filing first-time claims for unemployment benefits dropped last week to the lowest level in nine months.
Filed under: management by Wolf