The Philadelphia Federal Reserve manufacturing index, released on Thursday, indicates a drop from 16.8 in August to 12 in September. Despite the drop, the index topped expectations of a drop to 10 for September. Manufacturing continues to show signs of weakness, due in part to the pressures of the ongoing trade war.
Key Takeaways
- The Philadelphia Fed manufacturing index dropped from 16.8 to 12 in September, beating forecasts of 10.
- Any reading above zero indicates improving conditions, while readings below zero show contraction into worsening conditions. The index shows growth, but at a reduced rate.
- The trade war continues to negatively impact the manufacturing sector due to tariffs placed on US and Chinese goods.
The indices for new orders and general activity dropped, while shipments and employment saw growth, according to the Philadelphia Federal Reserve. The drop in new orders was a mild reduction from 25.8 to 24.8, and the general activity index indicates growth over the next six months despite contracting last month.
The ISM manufacturing index dropped to 49.1% in August, indicating contraction in that case, while the Empire State factory index is also close to contraction, both of which point to widespread problems in the sector.
Tariff increases on US goods from China has had a major impact on manufacturing, increasing the prices of US exports such as soy beans from US farmers to China. Manufacturers importing goods from China have also suffered increased prices, and with no end in sight to the conflict, business investment has contracted as investors hold off on spending until things have settled down.
In an uncertain business environment with weak manufacturing activity, there are concerns that the negative impact could spill out into other areas of the economy, such as consumer spending, or the labor market. However, so far there are no indications of that happening.
First Cut: Manufacturing general business conditions index for Philadelphia slips further in September, and six months from now looks worse as well. https://t.co/FDfETxBqMJ pic.twitter.com/OtUBJt5w95
— Whetstone Analysis LLC (@AnalysisLlc) September 19, 2019
Expert Outlook
“The fact that the new orders measure has now posted six consecutive good results after weakening significantly in February and March is an encouraging sign, and suggests that the factory sector, while suffering from an inventory correction, weak demand abroad and the effects of tariffs, has not fallen off a cliff,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez.
Market Reaction
Gold prices are down today - spot gold last traded at $1,501.99/oz, down -0.37% with a high of $1,509.80/oz and a low of $1,486.22/oz. It’s possible that the manufacturing report put pressure on gold prices due to being unexpectedly strong, despite reporting reduced growth.
Gold Price Chart
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