Philly Fed: Manufacturing Activity Expanded Somewhat in June, but Growth Remained a Challenge

June 16, 2016

The Federal Reserve Bank of Philadelphia said that manufacturing activity rebounded in June after contracting in both April and May.

Chad Moutray

The Federal Reserve Bank of Philadelphia said that manufacturing activity rebounded in June after contracting in both April and May. The composite index of general business activity rose from -1.8 in May to 4.7 in June. It was only the second time in the past ten months that activity has expanded, highlighting the challenges for the sector seen over much of the past year. The better headline number might have been a more encouraging sign, mirroring data from the New York Fed yesterday, if it were not for the fact that many other key measures in the Philly Fed report were lower. For instance, new orders (down from -1.9 to -3.0), shipments (down from -0.5 to -2.1) and employment (down from -3.3 to -10.9) pulled further into negative territory. Moreover, the average employee workweek (up from -15.1 to -13.1) continued to shrink at a fairly fast clip, despite a slight easing in the pace of decline in June.

On the positive side, somewhat more manufacturers (44.4 percent) expect third quarter production to increase over second quarter levels than those predicting decreases (40.3 percent). More than half of those anticipating higher production attributed that gain to seasonal factors. In contrast, business conditions were the top reason cited by those predicting lower production, with 72.5 percent attributing a decrease to economic factors. For those seeing higher production in the third quarter, they will do so by increasing labor productivity (41.9 percent), expanding work hours (29.0 percent) and hiring additional people (22.6 percent). This data suggests a more-cautious approach to hiring, leaning more toward productivity growth from the existing workforce.

Looking ahead six months, manufacturers in the Philadelphia Fed district remain cautiously upbeat about activity in their economic outlook. The forward-looking composite index decreased from 36.1 to 29.8, but remained relatively elevated. Along those lines, more than 45 percent of respondents predict higher levels of new orders and shipments, with one-quarter predicting additional hiring and almost 20 percent planning more capital expenditures.

About the Author

Chad Moutray | Chief Economist, National Association of Manufacturers

Chad Moutray is chief economist for the National Association of Manufacturers, where he serves as the NAM’s economic forecaster and spokesperson on economic issues. He frequently comments on current economic conditions for manufacturers through professional presentations and media interviews and has appeared on various news outlets. In addition, he is the director of the Center for Manufacturing Research at The Manufacturing Institute, the workforce development and education partner of the NAM, where he leads efforts to produce thought leadership, data and analysis of relevance to business leaders in the sector.

Prior to joining the NAM, Mr. Moutray was the chief economist and director of economic research for the Office of Advocacy at the U.S. Small Business Administration from 2002 to 2010. In that role, he was responsible for researching the importance of entrepreneurship to the U.S. economy and highlighting various issues of importance to small business owners, policymakers and academics. In addition to discussing economic and policy trends, his personal research focused on the importance of educational attainment to both self-employment and economic growth.

Prior to working at the SBA, Mr. Moutray was the dean of the School of Business Administration at Robert Morris College in Chicago (now part of Roosevelt University). Under his leadership, the business school had rapid growth, both adding new programs and new campuses. He began the development of an M.B.A. program that began accepting students after his departure and created a business institute for students to work with local businesses on classroom projects and internships.

Mr. Moutray is the vice chair of the Conference of Business Economists, and he is a former board member of the National Association for Business Economics, where he is the co-chair of the Manufacturing Roundtable. He is also the former president and chairman of the National Economists Club, the local NABE chapter for Washington, D.C.

He holds a Ph.D. in economics from Southern Illinois University at Carbondale and bachelor’s and master’s degrees in economics from Eastern Illinois University. He is a Certified Business Economist™, where he was part of the initial graduating class in 2015.

In 2014, he received the Outstanding Graduate Alumni Award from EIU, and in 2015, he accepted the Alumnus Achievement Award from Lake Land College in Mattoon, Illinois, where he earned his associate degree in business administration. He serves on the external economics advisory board for the SIUC’s School of Analytics, Finance and Economics.