Philly Fed Index Falls To Lowest Level In A Year In February

(RTTNews) - While the Federal Reserve Bank of Philadelphia released a report on Thursday showing continued growth in regional manufacturing activity in the month of February, the pace of growth unexpectedly slowed for the third consecutive month.

The report said the diffusion index for current general activity fell to 5.2 in February from 6.3 in January, although a positive reading indicates a continued increase in regional manufacturing activity.

The modest decrease came as a surprise to economists, who had expected the Philly Fed index to climb to a reading of 9.0.

With the unexpected decrease, the Philly Fed index fell to its lowest level since hitting a negative 2 in February of last year.

The Philly Fed noted that half of the firms responding to its survey indicated there was no change in activity from January to February.

The decrease by the headline index was partly due to a continued slowdown in new orders growth, as the new orders index slid to 5.4 in February from 8.5 in January.

On the other hand, the shipments index climbed to 8.1 in February from a negative 6.9 in January, while the unfilled orders index rose to 7.3 from a negative 8.6.

The number of employees index also rebounded to 3.9 in February from a negative 2.0 in January, as the percentage of firms reporting increases in employment exceeded the percentage reporting decreases.

Meanwhile, the report said the prices received index held steady at negative 0.2, while the prices paid index fell to 4.7 from 9.8.

The diffusion index for general future activity also tumbled to 29.7 in February from 50.9 in January, indicating a notable deterioration in optimism about regional manufacturing growth over the next six months.

Paul Ashworth, Chief U.S. Economist at Capital Economics, said the data "adds to the evidence that the stronger dollar and weak overseas demand is holding back the factory sector."

"Nevertheless, mirroring the latest Empire State survey, the Philly Fed index still points to modest GDP growth of around 2%," Ashworth said.

He added, "We expect the actual outturn for GDP growth to be nearer 3%, with the domestic-focused construction and services sectors enjoying much stronger gains."

On Tuesday, the New York Federal Reserve released a report showing a bigger than expected decrease by its index of regional manufacturing activity.

The New York Fed said its headline general business conditions index dipped to 7.8 in February from 10.0 in January, while economists had expected the index to edge down to 9.5.