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The Philadelphia Federal Reserve manufacturing index has seen the lowest reading since July 1980, falling from -12.5 in March to -55.6 in April. Economists had forecast a reading of -37.5. The index measures business conditions in the region, highlighting the increasingly serious consequences of the coronavirus pandemic as it spreads through the US, now the global epicentre for the outbreak.

Key Takeaways

• The Philadelphia Fed manufacturing index fell to -56.6 in April from -12.5 in March vs. -37.5 expected.
• New orders fell from -15.5 to -70.9 in April, while employment fell from 4.1 to -46.7.
• Firms expect improvement in the future, with the six-month outlook rising 8 points to 43.

The major drop in the Philadelphia Fed manufacturing index mirrors the record plunge seen in the New York Empire State manufacturing index the day before. Both indexes saw manufacturing and business activity plunge below the lowest levels seen in the Great Recession of 2007 – 2009. While the recession created by the coronavirus may prove more short-lived than the previous financial crisis, there is no denying that it is more serious in the short-term.

Manufacturing has been particularly badly hit by the outbreak, with global supply chains in chaos as well as factory workers impacted by state quarantine measures.

Among the respondents to the Philly Fed manufacturing index, 60% of firms reported decreased activity vs. just 4% of firms reporting increased activity. New orders fell deeper into negative territory, sliding from -15.5 to -70.9, an all-time low.

US PHILADELPHIA FED MANUFACTURING INDEX -56.6 pic.twitter.com/o59ue8AZ7x

— Morris Cabrioli (@insidegame) April 16, 2020

Current shipments also hit an all-time low, falling 74 points from positive territory in March. Unfilled orders slipped 6 points, while delivery times rose 13 points to 4.1, indicating delays and disrupted supply chains due to the coronavirus pandemic. Prices paid fell 14 points to -9.3, the lowest reading since May 2015. Most firms reported stable input prices, and the prices received index fell 17 points to -10.6, the lowest since July 2009.

Expert Outlook

The Philadelphia Fed released a statement reading “We are facing a challenge unlike any other in our lifetimes. Coronavirus has spread worldwide, with the United States now having the greatest number of confirmed deaths due to COVID-19.”

However, the central bank did clarify in the index report itself that the disparity between the current conditions and future outlook reported by respondents indicates that the current downturn may be largely over within the year. The White House has announced that it is readying guidelines to reopen some portions of the US economy starting in May.

Market Reaction

Gold prices have seen strong upward momentum today following very downbeat financial reports from multiple sectors of the US economy. Spot gold last traded at $1,728.48/oz, up 0.70% with a high of $1,738.46/oz and a low of $1,713.20/oz. Gold prices have held gains following a day of heavy volatility in yesterday’s session, likely a natural pullback following recent gains.

 The overall situation for gold is currently bullish, with the Federal Reserve balance sheet now exceeding $6 trillion due to recent monetary easing measures that have significantly increased the likelihood of USD inflation. Gold is also reacting to the news that 22 million Americans have applied for unemployment benefits in the last month, and housing starts have taken a drastic plunge.