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March Philly Fed index continues to point to weakness

By Alexander Bueso

Date: Thursday 21 Mar 2019

March Philly Fed index continues to point to weakness

(Sharecast News) - Perhaps the most widely-followed regional manufacturing gauge in the US rebounded sharply in March, but according to economists continued to point to an ongoing slowdown.
The Federal Reserve bank of Philadelphia's factory sector index improved from a reading of -4.1 for the month of February to 13.7 in March.

Economists had anticipated a smaller improvement to 4.0.

Investors monitor the Philly Fed index closely because it is one of the earliest surveys of activity which are published each month and activity in the US mid-Atlantic region tends to correlate well with that at the national level.

The key new orders gauge meanwhile improved from a reading of -2.4 to 1.9, while another linked to shipments jumped from -5.3 to 20.0.

Inflation pressures on the other hand eased, with the prices paid sub-index slipping from a reading of 21.8 to 19.7.

Hiring on the other hand ebbed, with a gauge linked to staffing levels at companies retreating from 14.5 to 9.6 and another which tracks the length of the average work week rising from 4.7 to 10.6.

March's increase in the Philly Fed index reversed the bulk of the prior month's 21.1 point drop, which had taken most analysts by surprise and left the gauge well out of line with the results of other surveys.

Nevertheless, commenting on the survey results, Ian Shepherdson at Pantheon Macroeconomics pointed out the weakness in some of the subindices, such as that for new orders, telling clients that the sector was "in deep trouble", although he did not expect that the weakness would be sustained.

Shepherdson went on to explain: "the underlying trend is still downwards, and we'd be surprised if this report means that the index has bottomed.

"The downshift in Chinese manufacturing has led the rollover in global PMIs and the lags suggests that further declines are coming in the DM numbers."

For their part, economists at Barclays Research called attention to the drift lower in the most forward-looking subindices contained in the report.

Specifically, the index of expected general business conditions, which looks six months forward, retreated by 9.5 points to 21.8.

In their opinion, they continued to point to stronger activity in the back half of 2019 "[but] these anticipated improvements worsened somewhat relative to February."

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