EmailThe Philadelphia Fed's Business Outlook declined from 3.9 in May to -7.7 in June. The Briefing.com consensus expected this regional manufacturing survey to increase to 7.0.
The manufacturing sector in the Philadelphia region has soured quickly after reaching multi-decade expansion rates just three months ago. This is the first time since September 2010 that the manufacturing sector has contracted in the Philadelphia region and this is the largest downturn since July 2009.
Unfortunately, the contraction registered in the Empire Manufacturing survey yesterday and in the Philadelphia Fed Index today may be a harbinger of an overall contraction in the manufacturing sector across the country. However, it is still possible that the contraction in June is just a pause in a longer growth trend as manufacturing customers took a conservative planning route and a wait-and-see attitude given the uncertainties introduced with the Japan earthquake, rising gas prices, Europe's sovereign debt problems, and China's tightening efforts.
All of the sub-indices in the Philly report declined from May levels.
Both new orders (-7.6 from 5.4) and unfilled orders (-16.3 from -7.8) contracted this month. Shipments barely held in positive territory, falling from 6.5 in May to 4.0 in June. Unless there is a sizable pickup in new orders next month, we expect shipments to contract in July.
