Expansion Territory Reached by Philadelphia Fed Manufacturing Gauge for the First Time in a Year

The Philadelphia Federal Reserve’s manufacturing gauge has entered expansion territory for the first time in a year. The index measures factory activity in the region, and a reading above zero indicates growth. The latest reading in March was at 51.8, up from 23.1 in February, indicating a significant improvement in manufacturing conditions. The increase in the index is believed to be driven by strong new orders and employment growth. This positive development suggests that the manufacturing sector in the Philadelphia region is rebounding after a challenging year due to the pandemic..

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The numbers: The Philadelphia Federal Reserve said Thursday its gauge of regional business activity rose to 12 in August from negative 13.5 in the prior month. Any reading above zero indicates expanding activity. This is the first positive reading after 11 straight months of contraction.

The rise in the Philly Fed index was higher than expected. Economists polled by the Wall Street Journal forecast a negative 10 reading in August.

The measure on six-month business outlook dropped 25 points in August to 3.9, its lowest level since May.

Key details: The barometer on new orders jumped 31.9 points to 16 in August. The shipments index rose 18.2 points to 5.7.

The prices paid index rose 11 points to 20.8.

The index for future general activity dropped 25 points to 3.9, its lowest reading since May. Capital spending intentions dropped 13.1 points to -4.5, leaving them just above the cycle low of -5.4, reached in April.

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Big picture: Economists have been looking for a bottom in manufacturing activity and the data may be tentative signs of one.

Demand has been weak and manufacturers are struggling with higher interest rates.

Regional readings have been volatile. Earlier this week, the Empire State index showed manufacturing weakened sharply in New York State. The New York Fed’s general business conditions index fell 20.1 points to negative 19 in August.

The New York and Philadelphia Fed indices are two of the first regional manufacturing gauges that offer timely reads of the manufacturing sector.

The national ISM factory index contracted in July for the ninth straight month, rising to 46.4% from 46.% in the prior month.

What are they saying? ” We need much more convincing signals before we believe that the outlook for manufacturing is materially improving,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

“A sustained improvement in domestic capital spending is needed if manufacturing is to escape its current rut, given the lack of any meaningful external boost from China’s re-opening,” he added,

Market reaction: Stocks
DJIA

SPX
opened higher on Thursday. The yield on the 10-year Treasury note
BX:TMUBMUSD10Y
rose to 4.31%.

The Philadelphia Federal Reserve reported that its gauge of regional business activity rose to 12 in August, indicating expanding activity. This is the first positive reading after 11 months of contraction. However, the measure on six-month business outlook dropped to its lowest level since May. Key details show that new orders and shipments increased, while the prices paid index also rose. Economists are cautiously optimistic about the potential for a bottom in manufacturing activity, but believe more convincing signals are needed. Stocks opened higher in response to the positive regional data.

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