Manufacturing in Philadelphia Grows Slightly

Overall improvement in the labor market as current employment index increased nearly 10 points and has now remained positive for eight consecutive months

A report by the Federal Reserve Bank of Philadelphia showed that in May manufacturing activity grew slightly. However the surveys broadest measure of manufacturing conditions, the diffusion index of current activity, decreased from 18.5 in April to 3.9, its lowest reading since last October.

The demand for manufactured goods, as measured by the current new orders index, showed a similar slowing: The index fell 13 points while the shipments index declined 23 points; both remained positive, however, suggesting slight growth last month. For the first time in eight months, firms reported that unfilled orders and delivery times were falling -- both indexes were slightly negative this month.

Despite weaker activity, orders and shipments companies continue to indicate overall improvement in the labor market. The current employment index increased nearly 10 points and has now remained positive for eight consecutive months. The percentage of firms reporting an increase in employment (32%) is higher than the percentage reporting a decline (10%). Only slightly more firms reported a longer workweek (17%) than reported a shorter one (13%) and the workweek index decreased 14 points.

Still, more firms expect to increase employment over the next six months (29%) than expect to decrease employment (7%).

Firms were asked about the factors that are influencing their hiring plans. Among the 48% of firms that are planning to increase employment over the next year, the most frequently cited reason influencing this decision was the expectation of high sales growth. The second and third most cited reasons were that current staff is overworked and the need to obtain skills not possessed by current staff. The most frequently cited factor for restraining hiring among all the firms was the need to keep costs low and low expectations of sales growth. Uncertainty about health-care costs, regulations, and government policies was also prominently listed.

Indexes for prices paid and prices received declined from April but remain at relatively high readings, suggesting that considerable price pressures remain, the Fed said. The prices paid index declined 9 points this month, but it is still at a relatively high reading of 48.3. Fifty-six percent of the firms reported higher prices for inputs this month, and 8% reported a decline.

On balance, firms also reported a rise in prices for manufactured goods: 20% reported higher prices for their own goods this month; just 3% reported price reductions. The prices received index decreased nearly 11 points, its first decline in nine months.

The future general activity index decreased 17 points this month, following a 29-point decline last month. The indexes for future new orders and shipments also declined, decreasing 12 and 17 points, respectively. The index for future employment, which had been improving in recent months, fell back 15 points.

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