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Philly Fed Index Slips To New Low

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The Federal Reserve Bank of Philadelphia reported Thursday its index of general business activity covering the regional factory sector slid to 13-month low in March to 5.0 from 5.2 in February hinting at U.S. factories are off to a slow start this year. This is in sharp contrast to the index value of 40.8 touched in November last year, the best reading since December 1993. Decline in shipment partly led the fall in headline index as the shipments index plunged to a negative 7.8 in March from a positive 8.1 in February. Harsh weather conditions slowed activity in the Northeast and parts of the Midwest last month, and now-settled labor dispute hindered shipments from West Coast ports. The unfilled orders index also tumbled to a negative 13.8 in March from a positive 7.3 in February, while the new orders index dipped to 3.9 from 5.4. Although the current employment index was mostly flat at 3.5 (previous: 3.9), it was still below its average reading of about 14 over second half of last year suggesting comparatively weaker labor market conditions continue to prevail.

The prices paid index also slipped to a negative 3.0 in March from a positive 4.7 in February, and the prices received index further slid to a negative 6.4 from a negative 0.2 as the survey results showed input-cost pressures eased while for their own products, more firms reported price decline than reported price increases. The diffusion index for expected total capital spending fell from its 4-year high of 28.8% recorded last year to 14.9% in March. However, the diffusion index for future activity edged up modestly to 32.0 in March from 29.7 in February, though it was still below the last year's readings, a positive sign that the manufacturing sector is expected to continue growing over the next six months.

On a larger perspective, the Manufacturing Business Outlook Survey indicates continued modest expansion of the region's manufacturing sector in March. The indicators for general activity and new orders both continued to suggest modest growth. Philadelphia manufacturers remain optimistic about increase in overall business and employment over the next six months, although optimism was less widespread than just a few months ago. Philadelphia Fed report was followed by the New York Empire State Manufacturing Survey which also reflected modestly expanding business conditions and improving employment conditions though the new orders remained under pressure.