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Economic Report: Philadelphia Fed manufacturing index surges to 7-month high despite rising inflation

The numbers: The Philadelphia Fed said Thursday its gauge of regional manufacturing activity rose to 39 in November from 28.3 in the previous month.  Any reading above zero indicates improving conditions.

Economists expected a 22.0 reading, according to a Wall Street Journal poll.

Key details: The headline index is based on a single stand-alone question about business conditions unlike the national ISM manufacturing index which is a composite based on components.

The gauge of new orders rose 16.6 points to 47.4, while the shipments index gained 2.1 points to 32.1 in November.

Unfilled orders rose 14.7 points in November to 27.4 from the previous month.

The reading of the six-month business outlook rose to 28.5 from October’s reading of 24.2.

The index of the number of employees edged lower to 27.2 from 30.7 last month, the regional bank said.

The prices-paid index rose to 80 from October’s reading of 70.3, while the prices-received index moved to 62.9 from October’s reading of 51.1.

Companies were asked to predict how much they would increase prices this year, with the median answer being 5.3%, up from 5% when the question was last asked in August. They expect employee compensation costs to rise at a median fate of 4.8% over the next four quarters, up from 4.0% in August.

The firms’ median forecast for the average inflation rate over the next 10 years was 3.5 percent, an increase from 3.0 percent in August.

Big picture: The report comes on the heels of a strong reading of the New York Fed’s manufacturing index, and together these data point to a healthy manufacturing sector, though one that is paying more for inputs and passing along those price increases to customers.

Economists use these reports as a harbinger of the strength of the national ISM November  factory index, to be released early next month. In October, the ISM factory index held steady at a strong 60.8 reading.

What economists are saying: “The takeaway here should be that, pandemic-related volatility aside, the level of this index remains quite strong (and above where it was generally running pre-pandemic), which is consistent with other evidence concerning the manufacturing sector,” wrote Josh Shapiro, chief U.S. economists at Maria Fiorini Ramirez Inc., in a client note.

“Indeed, representative commentary from companies included in a broad array of manufacturing sector surveys indicates that demand for their products has more than fully recovered and remains strong,” he added.

Market reaction: U.S. stocks were set to move higher at the start of trade, with futures for the S&P 500
SPX,
+0.16%

and Dow Jones Industrial Average
DJIA,
-0.11%

each pointing to early morning gains.

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