The manufacturing industry in the Philadelphia Fed region has been contracting now for more than 10 consecutive months. There is no doubt that the manufacturing industry remains weak and continues to contract. As consumer confidence and demand continue to disappoint, conditions will likely remain weak for the rest of the year.
Price pressures continued to abate in November as manufacturers reported lower input and finished goods prices. This means that consumer inflation will likely remain subdued, and manufacturers' profit margins will benefit from the lower input costs. At the same time, low inflationary pressures allows the Fed to proceed with additional interest rate cuts.
The best news came from the employment data. Firms continued to reduce their payrolls, but they did so at a smaller rate. At the same time, they increased the average employee workweek, which means that either they cut their workforce too much already, or that there is demand for additional production.
Coupled with a reduction in inventories, these data indicate that the inventory-to-sales adjustment may soon be over. If that is indeed the case, production may pick up again in the near term.
The outlook remains positive going forward, as 53.3% of the survey respondents expect an improvement in the level of business activity six months from now. However, there is less exuberance compared to last month, when 62.2% of survey respondents expected improvements in the business activity. |
