PhillyInc: Philly Fed's survey shows growth in manufacturing sector

The most widely watched economic report to emanate regularly from Philadelphia made barely a ripple in the markets Thursday.

The Federal Reserve Bank of Philadelphia's Business Outlook Survey documented that the region's manufacturing sector expanded at a moderate pace in January.

Investors tossed the survey onto the woodpile of statistics, including lower initial jobless claims and higher housing starts, that indicate that the U.S. economy continues to heal from a financial crisis-triggered recession.

But the fact that a monthly survey drawn from mostly midsize manufacturers in a region that stretches from Johnstown to Trenton can attract any national attention is remarkable.

Michael Trebing, the Philly Fed senior economic analyst who has shepherded the survey for years, said its longevity (begun in May 1968) and consistency (some firms have participated for more than 20 years) are virtues.

About 165 companies have agreed to participate in the process, and on average about 80 respond to a simple check-the-box survey form each month, Trebing said.

One difference between the Philadelphia survey and the national manufacturing report issued by the Institute for Supply Management is the seniority of the respondents. Generally, chief executives, chief financial officers, and plant managers fill out the Philly Fed's Survey. Purchasing managers are the bread and butter of the ISM report.

Just who are these captains of manufacturing involved in the production of biomedical devices, precision machines, fabricated steel, and other non-e-commerce objects? The reserve bank keeps their identities confidential in exchange for what they hope are the executives' honest insights on their firms' new orders, shipments, inventories, employment, and other indicators.

For example, the Philly Fed asked what factors would influence their plans to hire over the next 12 months. Far and away the biggest reason they provided for adding employees would be if they expected high sales growth.

Conversely, companies' desire to keep their operating costs low was cited as the top factor in their holding back on hiring. A close No. 2 was low expectations for sales growth.

Currently, just one-fifth of the companies in the Business Outlook Survey said they were hiring, while 67 percent reported no change in employment and 9.7 percent reduced their workforces.

While manufacturing has been one of the strongest sectors in what has been a tepid U.S. economic recovery, most companies are still operating below their peak production levels, Trebing said.

Still, if you want to see the glass as half full, the future (defined as six months from now) looks brighter. The Business Outlook Survey's future general activity index for January reached its highest level in 10 months and has risen for five consecutive months.

The half-empty view would be that no Philadelphia-area manufacturer makes a drinking glass that you could fill with Schuylkill punch.


Contact Mike Armstrong

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