Economic Data and Growth

In May, Philadelphia’s regional manufacturing activity contracted slightly after four consecutive months of growth, with the index for general business activity falling from 26.7 to -0.4. This month, 22.9% of firms noted decreases in activity, while 22.5% reported increases. New orders declined, moving from 33.0 to -1.7, while shipments grew at a slower pace, dropping from 34.0 to 4.9. Meanwhile, the employment index improved but remained negative, increasing 2.3 points to -2.8, and the average employee workweek stepped down 6.5 points to 1.2.

The prices paid and prices received indices declined in May, decreasing from 59.3 to 47.9 and from 33.5 to 26.3, respectively. As has been the case for many months, the prices received index remained lower than the prices paid index, indicating that manufacturers have been absorbing a portion of higher costs paid.

Looking ahead, most indicators showing expectations for future growth rose in May. After ticking up 0.8 points in April, expectations for future business activity climbed 12.4 points to 53.2 in May. The rise primarily came from a gain in the proportion of firms expecting increases in activity (66.5%). At the same time, the number of firms anticipating a decrease in activity (13.2%) was lower in May. The future new orders index advanced from 45.7 to 53.5, and the future shipments index moved up from 40.8 to 45.7. On the other hand, the capital expenditures index fell from 35.2 to 30.9. The future prices paid and prices received indices increased from 50.2 to 70.0 and from 50.2 to 60.5, respectively. Additionally, the index for future employment stepped down from 35.9 to 31.7.

In May, firms were asked about changes to core customers’ price sensitivity and anticipated cost changes. Of those responses, 42.3% of firms view core customers as more price sensitive since the prior quarter, up from 30.8% when this question was asked in February. Meanwhile, 48.0% of firms expect near-term price changes in their industry’s costs, while 52.0% do not. When asked about how they anticipate competitors to respond, 75.0% anticipate them to raise prices in the near term, while none believe they will lower prices. Looking forward, those who anticipate a price change from their competitors estimate that they will change prices in three months.