Empire and Philly Fed suggest steep rebound may be abating
The slowdown in spending by consumers and the soft patch in the broad-based service sector are starting to spread to the fast-paced recovery in manufacturing. The Empire Manufacturing Index fell 15 points in July to 5.1, while the Philly Fed Index decreased from 8.0 in June to 5.1 in July. A reading above zero signals an expansion.
First, the Empire survey, which looks at New York.
New orders and shipments slowed, while a rise in inventories suggests that a pullback in sales may be allowing goods on hand to perk up a bit. That could give GDP a boost in the short run but may also translate into a moderation in production.
Manufacturers are still adding to staff, but the rate decelerated, while the average workweek declined for the first time since December.
Despite the pause in activity, businesses in the New York region remained fairly optimistic in July compared to June, signaling that most manufacturers are not anticipating an outright slump in activity.
Philly Fed also measuring a slowdown
The Philly Fed Index, which looks at manufacturing in the mid-Atlantic region, shows activity continues to expand, but the rate of growth has slowed over the past two months.
New orders turned negative for the first time in a year, indicating that the pullback in production will likely continue through the short-term, while shipments decelerated.
A little more worrisome was the steep decline of 15.2 points in the six month outlook to 25.0.
Both surveys are not signaling a recession and tend to be more volatile than the national index released by the Institute for Supply Management. However, the Philly Index did a great job of turning early in both the 2001 and the current recession.
A prolonged period of weakness would be something to be concerned about.
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