Manufacturing Index “Unexpectedly” Contracts

By | May 17, 2012

The Federal Reserve bank of Philadelphia released the results of its May Business Outlook Survey. Manufacturers are reporting a shocking reversal in the survey’s measure of current manufacturing activity from 8.5 in April to -5.8 in May.

Analysts had expected the activity measure to increase to 10.0 this month, but all of the indications from the Fed survey are that manufacturing, and perhaps the economy is slowing.

The index for new orders also reversed into negative territory. Demonstrating a contraction in consumer demand, the index dropped from 2.7 in April to -1.2 for May.

In contradiction to Joe Biden’s Wednesday speech announcing that manufacturing jobs are returning to the country, the Fed’s employment index showed the opposite. Having been positive for the last few months, the index decreased a whopping 19 points to -1.3 showing contraction in manufacturing jobs. When asked about whether companies would be increasing or decreasing the size of their workforce, 14% more companies will be losing jobs than gaining them.

The report also shows some downward price pressure as “more firms reported price decreases (12 percent) than reported increases(8 percent).” As manufactured goods rely heavily on transportation, declining fuel prices may play a big part in the deflationary pressure, but weak demand in the U.S. and abroad is likely a bigger influence.

The last sentence of the Reserve’s summary says it all: “The outlook among the reporting firms was notably less optimistic.” – unexpectedly, for sure.

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