The Philly Fed Business Outlook Survey continued in contraction. Key elements went deeper into contraction. Both manufacturing surveys released so far for this month are in contraction.

This is a very noisy index which readers should be reminded is sentiment based. The Philly Fed historically is one of the more negative of all the Fed manufacturing surveys but has been more positive then the others recently.

The index improved from -3.5 to -2.8. Positive numbers indicate market expansion, negative numbers indicate contraction. The market expected (from Bloomberg) -7.5 to 2.8 (consensus -2.5).

Firms responding to the Manufacturing Business Outlook Survey reported continued weakness in business conditions this month. The indicator for general activity remained slightly negative this month, edging up only marginally from its reading in January. Other indicators offered mixed signals: The shipments index remained positive, but new orders and employment indexes remained negative and declined modestly. The survey’s price indexes suggest that both input prices and selling prices fell this month. With respect to the manufacturers’ forecasts, the survey’s future indicators remained overall positive but showed continued weakening.

Current Indicators Suggest Continued Weak Activity

The diffusion index for current activity increased from a reading of -3.5 in January to -2.8 in February and has now been negative for six consecutive months (see Chart 1). The index for current new orders remained negative and edged down 4 points, to -5.3. Firms reported an increase in shipments; the shipments index remained positive for the second consecutive month but fell 7 points from January. Firms reported continued declines in inventories, and the inventories index remained negative. Firms’ backlogs of unfilled orders were in decline again this month, and delivery times were shorter, according to the responding firms.

The survey’s labor market indicators suggest continued weak employment conditions. The employment index decreased 3 points, from -1.9 to -5.0. About 63 percent of the firms reported no change in employment this month, and the percentage reporting decreases (20 percent) was slightly larger than the percentage reporting increases (15 percent).

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