Two relatively good reports today, now for the bad news.
Rounding out a very busy day of economic data (and for that matter, a very busy week and we still haven’t made it to Friday), the Philly Fed’s Index of Business Activity is signaling that the weakness that has cropped up in the once hot manufacturing sector is continuing into June.
Source: Philly Fed
The survey that looks at manufacturing in the mid-Atlantic region fell from 3.9 in May to –7.7 in June, the first negative reading since last September. A level of zero suggests the sector is neither expanding nor contracting.
New orders slipped into negative territory, while the future general activity index decreased 14 points this month and has now dropped 61 points over the last three months.
National manufacturing has been hurt by the supply chain disruptions brought on by the earthquake in Japan.
But autos and auto parts play a very small role in the mid-Atlantic region, as Goldman Sachs calculates the share of auto production in the region covered by the Philly Fed survey is just 1.1% and 1.9% for the Empire State – the New York survey – per MarketWatch.
In a reflection of weaker activity, prices paid fell from 48.3 to 26.8, and prices received, which is an indicator of how well manufacturers are able to pass along higher costs, dropped from 16.8 to 4.4.
Like the Empire survey, the slowdown in the economy is taking the focus away from inflation, especially as firms find it more difficult to boost prices.
And the apparent shift in pricing power away from manufacturers is occurring just as core inflation has begun to heat up.
Yesterday, the CPI increased by a modest 0.2%, but the core rate of inflation rose 0.3%, the first such rise in almost three years, as higher commodity prices begin to work their way into the broader price level.
The Fed believes any inflation will be transitory, as demand has not been robust and wages, the largest expense for most businesses, have been stable.
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