Manufacturing in Philadelphia shows slight expansion, economists report

October 22, 2012

U.S. manufacturing may not have yet made a full recovery from the economic downturn, but there are positive noises coming from regional industry hubs, with economists reporting that the Philadelphia region experienced expansion for the first time in six months.

According to Bloomberg, the general economic index monitored by the Federal Reserve Bank of Philadelphia showed an increase in September from minus 1.9 to 5.7, indicating that the industry had expanded. With a reading of zero  showing a dividing line between manufacturing expansion and contraction, the release of the report was warmly welcomed by analysts as a sign that consumer confidence could be returning, especially when analyzed alongside other industry reports.

"Manufacturing has troughed in terms of the declines in activity," said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit. "As the recession in Europe becomes less severe, it will take the pressure off exports. There is some demand."

While the report from Philadelphia Fed is seen as an indicator of current business strategy in the region, data also revealed that factory production in New York contracted for the third straight month with consumer confidence and household wealth showing small increases in the overall index. Figures recently released by the Bureau of Labor Statistics indicated that the nationwide unemployment levels had continued to drop, although the employment index released by the Philadelphia Fed revealed that companies continued to employ lean manufacturing policies with the number dropping to minus 10.7, the lowest reading since September 2009.

The index isn't built of individual measures with many industry analysts using it as a barometer for the overall mood of the manufacturing industry nationwide. According to the figures published by the Philadelphia Fed, shipments and manufacturing inventory have also increased, as have prices paid and received for products.

While consumer confidence reached a six-month high and real-estate prices continue to slowly grow, factory owners are still looking to the future with guarded concern. The manufacturing optimism index for the next six months dropped from 41.2 to 21.6, however, this may have less to do with the industry and more with the upcoming presidential election. Automobile sales remain high, as does the demand for products associated with the industry, although a slowing of demand from China has forced a change in manufacturing strategy in some sectors of the metal industry.

"We do see a slight slowdown in some regions in end- markets, and the main driver for this is China," said Klaus Kleinfeld, Chairman and Chief Executive Officer of Alcoa Inc., the largest U.S. aluminum producer.