Bloomberg News

Philadelphia-Area Economy Contracts at a Slower Pace

August 16, 2012

Manufacturing in the Philadelphia region contracted in August for a fourth consecutive month as orders and employment declined.

The Federal Reserve Bank of Philadelphia’s general economic index improved to minus 7.1 in August from minus 12.9 the previous month. Economists forecast the gauge would climb to minus 5, according to the median estimate in a Bloomberg survey. A reading of zero is the dividing point between contraction and expansion in the area covering eastern Pennsylvania, southern New Jersey and Delaware.

Today’s report is in line with figures from The Federal Reserve Bank of New York earlier this week that showed manufacturing contracting for the first time in 10 months. Slowing demand from Europe to China and cutbacks in business investment in new equipment may be hurting U.S. factories even as American household spending holds up.

“The pace of growth is still unimpressive overall,” said Sean Incremona, senior economist at 4Cast Inc. in New York before the report. “Externally there are some headwinds with pretty soft global conditions. We think that business investments are pretty tame in 2012 so that is restricting manufacturing from a domestic standpoint as well.”

Estimates in the Bloomberg survey from 56 economists surveyed ranged from minus 17.9 to 5.

S&P 500

Stocks were little changed after the report, trimming earlier gains. The Standard & Poor’s 500 Index was at 1,405.96 at 10:20 a.m. in New York, up less than 0.1 percent from yesterday’s close.

The Philadelphia Fed’s employment gauge fell to minus 8.6 in August, the lowest level since September 2009, from minus 8.4 in July.

New orders dropped at a slower pace as the measure improved to minus 5.5 from minus 6.9 the previous period. The shipments index dropped to minus 11.3 from minus 8.6.

The Philadelphia Fed’s report also showed inflation picked up. The bank’s gauge of price paid climbed to 11.2 from 3.7. The measure of prices received advanced to 2.8 from 1.6.

Individual measures in the index don’t contribute to the headline reading, so some economists consider it a gauge of sentiment among manufacturers.

The region’s manufacturers were less optimistic about the future. The index of the outlook for six months from now fell to 12.5, the lowest level in a year, from 19.3 in July.

Economists monitor the New York and Philadelphia Fed factory reports for clues about the Institute for Supply Management’s report on U.S. manufacturing. The New York Fed’s general economic index fell to minus 5.9 this month from 7.4 in July. The national ISM factory data will be released on Sept. 4.

Manufacturing makes up 12 percent of the U.S. economy.

To contact the reporter on this story: Caroline Fairchild in Washington at cfairchild2@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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