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Philly Fed Services Index - Firm Level Activity Pulls Back Sharply, Regional Index Falls 30 Points - Detail

Sep. 21, 2021 11:02 AM ET
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US Philly Fed Non-Manufacturing Regional Business Activity Index Sep: 9.6 (prev 39.1)

Prices Paid: 51.5 In Sept Vs 50.1 In Aug

Inventories: -6.3 In Sept Vs 1.5 In Aug

Firm-Level Business Activity Index 21.9 In Sept Vs 37.2 In Aug

Note: Survey responses were collected from September 7 to September 16.

After pulling back in August, Philly Fed non-manufacturing survey did not see the bounce we saw in its manufacturing counterpart falling sharply although the damage was more subdued for the firm-level component versus the regional. I place a lot more emphasis on the former as executives are much better at judging what's going on with their specific firm than they are regarding the region as a whole, but even that was at the lowest level since April. As responses were from the second week of September, it looks like issues in the service economy from the Delta variant and labor and other shortages appear to continue to slow things in that sector, although employment did improve. With cases falling, schools reopened, and vaccination numbers continuing to improve, I think we'll see stabilization here. I believe this is the same week as the jobs survey.

But for this report at least it wasn't great with new orders, sales, and backlogs all decelerating m/m . Positively though number of employees and cap ex both accelerated. Full table at the end.

In terms of looking forward, the index for firm-level future general activity (I generally ignore the "regional" indicators due to the reasoning above) also declined sharply but remained in "expansion" territory as well, falling by around 25 points from 65.8 to 39.3.

The special question was about Q3 revenues vs Q2. Only 21% of firms expected a decrease while 41% expected an increase. Labor issues and supply chains were overwhelmingly the most cited reasons for lost revenues.

From the report:

Responses to the September Nonmanufacturing Business Outlook Survey suggest continued growth in business activity in the region. However, the indicators for firm-level general activity, new orders, and sales/revenues all declined from last month. The survey’s indexes for full-time and part-time employment rose. Overall, the respondents continued to expect improvement in conditions over the next six months, but both future activity indexes fell.

Current Indicators Moderate but Remain Positive

The diffusion index for current general activity declined for the third consecutive month, falling from 37.2 in August to 21.9 this month, its lowest reading since April (see Chart 1). The share of firms reporting increases in general activity (44 percent) exceeded the share reporting decreases (22 percent); however, the share of firms reporting decreases nearly doubled from last month. The new orders index declined 13 points to 14.7 in September. The sales/revenues index fell from 29.0 in August to 16.7 in September. While 43 percent of the firms reported increases in sales/revenues (unchanged from last month), 26 percent reported decreases (up from 14 percent), and 24 percent reported no change (down from 33 percent). The current regional activity index decreased 30 points to 9.6 in September.

Employment Indicators Improve

The firms continued to report overall increases in full-time and part-time employment this month. The full-time employment index rose 6 points to 14.1 after falling 17 points last month. Of the firms responding, 21 percent reported increases in full-time employment, while 7 percent reported decreases. Most firms (68 percent) reported stable full-time employment. The part-time employment index increased 12 points to 13.8. Most firms reported steady part-time employment (54 percent), while 22 percent of the firms reported increases and 8 percent reported decreases.

Price Increases Remain Widespread

The prices paid index ticked up 1 point this month to 51.5 (see Chart 2). More than 52 percent of the firms reported increases, 1 percent reported decreases, and 34 percent of the firms reported stable input prices. Regarding prices for the firms’ own goods and services, the prices received index fell 5 points to 20.8 in September. More than 23 percent of the firms reported increases in prices received, while only 3 percent reported decreases. Nearly 58 percent of the firms reported no change in prices for their own goods and services.

Firms Report Higher Sales/Revenues and Labor Issues

In this month’s special questions, the firms were asked to estimate their total sales/revenues growth for the third quarter ending this month compared with the second quarter of 2021 (see Special Questions). The share of firms reporting expected increases in third-quarter sales/revenues (41 percent) was greater than the share reporting decreases (28 percent), with a median response of an increase of 0 to 5 percent. Among factors constraining current business operations, 51 percent of the firms reported labor issues, 36 percent reported supply chain issues, and 34 percent reported COVID-19 mitigation measures.

Future Indicators Soften

Both future activity indexes suggest that while the respondents expect overall improvement in nonmanufacturing activity over the next six months, optimism for future growth waned this month. The diffusion index for future activity at the firm level fell sharply from a reading of 65.8 in August to 39.3 this month, its lowest reading since January (see Chart 1). Nearly 56 percent of the firms expect an increase in activity (down from 69 percent last month) at their firms over the next six months, compared with 16 percent that expect decreases (up from 4 percent). The future regional activity index fell 27 points to 34.2.


Responses to this month’s Nonmanufacturing Business Outlook Survey suggest some moderation in nonmanufacturing activity growth in the region. The indicators for firm-level general activity, new orders, and sales/revenues all declined but remained positive; however, the full-time employment index increased. The future activity indexes suggest that respondents expect improvement at their firms and in the region over the next six months, but readings decreased from last month.

To see more content, including summaries of most major U.S. economic reports and my morning and nightly updates go to Cbus Neil's Blog Posts for more recent or Sethi Associates for the full history.

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