Philly Manufacturing Rebounds, Led by New Orders and Hiring Gains

In June, Philadelphia’s regional manufacturing activity expanded after contracting slightly last month, with the index for general business activity rising from -0.4 to 10.3. This month, 32.1% reported increases, while 21.9% reported decreases. New orders rebounded, moving up from -1.7 to 27.3, while shipments rose from 4.9 to 14.9. Meanwhile, the employment index improved and turned positive, increasing 10.7 points to 7.9, and the average employee workweek declined 7.7 points to -6.5.

The prices paid index stepped up in June, increasing from 47.9 to 53.2, while the prices received index declined from 26.3 to 20.3. 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 June. After climbing 12.4 points in May, expectations for future business activity stepped down 3.0 points to 50.2 in June. The decline came from a drop in the proportion of firms expecting an increase in activity (61.4%). At the same time, the number of firms anticipating a decrease in activity (11.2%) declined in June. The future new orders index advanced from 53.5 to 60.8, and the future shipments index moved up from 45.7 to 60.3. At the same time, the capital expenditures index jumped from 30.9 to 41.2. The future prices paid index decreased from 70.0 to 63.2 and the future prices received index rose from 60.5 to 67.2, with both indices remaining above their long-run averages. Additionally, the index for future employment ticked down from 31.7 to 30.8.

In June, firms were asked to estimate their production growth for the second quarter. Of those responses, 47.8% of firms saw higher production compared to the first quarter, with 13.0% seeing an increase of 10% or more. Meanwhile, 21.7% of respondents saw a decline in production and 30.4% saw no change. When asked about capacity utilization compared to a year ago, the median capacity utilization rate reported was unchanged at 70% to 80%. Looking forward, 44% of firms expect the impact of uncertainty to worsen over the next three months.