Research >> Economics
Philadelphia Fed February Outlook continued to deteriorate
|
Conditions in the region's manufacturing sector continued to deteriorate this month, according to firms polled for the February Business Outlook Survey. All of the survey's broad indicators for current activity remained negative and fell from their already low levels in January. Employment losses were more substantial this month, and nearly half of the surveyed firms reported declines in both employment and average hours worked. Firms continued to report declines in input prices and prices for their own manufactured goods. Most of the survey's indicators of future activity improved, continuing to suggest that the region's manufacturing executives expect declines to bottom out over the next six months.
Indicators Show Larger Declines
The survey's broadest measure of manufacturing conditions, the diffusion index of current activity, declined from a reading of -24.3 in January to -41.3 this month, its lowest reading since October 1990. The index has been negative for 14 of the past 15 months, a period that corresponds to the current recession (see Chart). Weakening conditions were evident in all of the broad indicators this month. The survey's new orders index declined eight points, and the survey's shipments index fell markedly (16 points) to its lowest reading since the survey began in 1968. Unfilled orders and delivery times remained significantly negative this month and edged slightly lower than in January, suggesting further weakening.
In special questions this month, firms were asked about their current inventory situation. Nearly 44 percent of the firms indicated that their inventories were too high and were expected to decrease during the first quarter; 67 percent said their customers' inventory plans had also decreased. Firms were asked whether inventory changes in recent months were intended or unintended and what factors were most important in explaining the changes. Both actual sales and expected sales were categorized as "very important" (37 percent and 28 percent of firms, respectively). About 20 percent of the firms cited unexpected changes in sales as very important. Fewer firms cited expected changes in prices and changes in credit terms or availability as factors.
The current employment index fell for the fifth consecutive month, dropping seven points, to -45.8, its lowest reading in the history of the survey. The percentage of firms reporting a decrease in employment (48 percent) was greater than the percentage reporting an increase (2 percent). The average workweek index deteriorated significantly, declining from -30.3 to -44.9. Forty-eight percent of the firms reduced work hours this month.
Posted: February 19, 2009 Thursday 10:00 AM