Manufacturing activity in the mid-Atlantic region unexpectedly weakened further in July and the outlook for future activity crashed to the lowest level since 1979, according to data released Thursday by the Federal Reserve Bank of Philadelphia.
The Philly Fed’s survey of manufacturing businesses found that indicators of both current general activity fell further into negative territory. The general activity index fell for the fourth straight month, falling 9 points to minus 12.3 in July. This is the second consecutive negative reading.
Economists had predicted a bounce back into positive territory after June’s unexpected plunge into a negative score.
The index for new orders fell for the second consecutive month from -12.4 to -24.8.
The index for future general activity fell 12 points to -18.6, the lowest reading since December 1979. The decline was driven by a dramatic drop in the number of firms reporting increases in future activity. This fell from 36 percent last month to 17 percent in July. The share expecting no change increased to 40 percent, up from 19 percent last month. The share expecting declines actually fell from 42 percent to 35 percent.
The future new orders index fell five points to -12.4.
Manufacturers continue to report widespread price increases, although the indexes for these have declined for the past three months. The prices paid index fell 12 points to 52.2, the lowest reading since January 2021 but still suggesting broad inflation in materials with 56 percent of firms reporting cost increases and just three percent reporting cost decreases. The prices received index, which measures what manufacturers charge for their finished product, dropped 19 points to 30.3. Almost 37 percent say they increased their prices since last month and six percent say they decreased prices.
Manufacturers expect energy prices and prices of raw materials to increase between 7.5 and 10 percent this year. They expect prices of intermediate goods used in manufacturing to increase between five and 7.5 percent. Wages are expected to rise between four and five percent. Total compensation costs, which includes wages and benefits, are expected to rise between five and 7.5 percent.
Despite the decline in activity, labor market indicators showed hiring continued and is expected to continue. Nearly 24 percent of firms said they added to payrolls, with just four percent saying they had decreased employment. Average workweek, however, decreased for the fourth consecutive month. Nearly 56 percent of firms expect employment to hold steady over the next six months, while 29 percent expect increases and 13 percent expect declines.
The expectations for future capital expenditures fell seven points to 4.4, the lowest reading since March 2013. This likely reflects a pullback in spending plans due to high prices and falling customer demand. As well, Fed interest rate hikes are making financing of capital expenditures less affordable. Eighty-one percent of firms said they expect no change to capital spending and only 10 percent expect to increase capital spending.
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