Philadelphia-Area manufacturing index beats forecasts

February 17, 2012

Manufacturing in the Philadelphia region expanded in February at the fastest pace in four months, as a sharp increase in the number of orders and sales occurred, Bloomberg reported.

According to the news outlet, the Federal Reserve Bank of Philadelphia's general economic index rose to 10.2, a number that was higher than projected and an increase of 2.9 points when compared to the data from January. Economists had forecast that it would only rise to 9, according to the median estimates from a survey.

Production is poised to continue expanding as companies will rebuild their inventories and invest in new equipment as part of their business strategy. The industry may also be propelled by faster job creation in the U.S., which will spur consumer spending.

"Manufacturing is still receiving good demand both domestically and from overseas," David Semmens, a U.S. economist at Standard Chartered Bank in London, told Bloomberg prior to the report. "You’re seeing stronger demand in the automobiles sector and reasonable demand for high-end capital goods."

MarketWatch reported that the new orders index rose from 6.9 to 11.7 and shipments mirrored this rise with an increase to 15.0 from 5.7.

The inventory index fell to -12.9 from -6.3 in January, which is good news, according to Millian Mulraine, an analyst for TD Securities, who noted that this points to further upside momentum for production activity in the coming months, according to the news outlet.

The Wall Street Journal reported that Philadelphia manufacturers remain optimistic about future economic activity, as the index may have lost some ground in this regard but stayed above the line for contraction.

"Firms that plan to increase capital spending noted that they expect to spend more on noncomputer equipment, software, and computer hardware, and they most frequently cited expected high sales growth, the need for replacement capital, and an improved cash flow or balance sheet position as the reasons for their increased capital spending plans," the Philadelphia Fed report said, according to the newspaper.

Reuters reported that the survey covers manufacturing sites in eastern Pennsylvania, southern New Jersey and Delaware. This data gave economists confidence about the sector, especially  in terms of future activity.

"Metric after metric, uniformly, is doing better, and barring any unforeseen problems from Europe it appears we're in a self-sustaining cycle of growth," Jim Awad, managing director at Zephyr Management in New York, told the news outlet.