Philadelphia Area Manufacturing Contracts for Fifth Month

Sept. 20 (Bloomberg) -- The Federal Reserve Bank of Philadelphia’s general economic index increased to minus 1.9 in September from minus 7.1 the previous month. Erik Schatzker reports on Bloomberg Television's "Market Makers." (Source: Bloomberg)

Manufacturing in the Philadelphia region shrank for a fifth straight month in September, reinforcing signs the industry will offer less support to the U.S. economy.

The Federal Reserve Bank of Philadelphia’s general economic index improved to minus 1.9, higher than forecast, from minus 7.1 in August. Readings less than zero signal contraction in the area covering eastern Pennsylvania, southern New Jersey and Delaware. The median forecast of 62 economists surveyed by Bloomberg was minus 4.5.

The figures, which showed a slump in sales and cutbacks in employment, add to concern a pillar of the expansion is faltering. Cooling exports due to the European debt crisis, combined with slower business investment and restrained household spending in the world’s largest economy, mean manufacturing may stay depressed.

“The sector continues to struggle,” said Millan Mulraine, senior U.S. strategist for TD Securities in New York, who projected a reading of minus 2. “There’s uncertainty both domestically and globally. We’re likely to see manufacturing moving sideways.”

Bloomberg survey estimates ranged from minus 10.3 to 2. A report earlier this week showed New York-area manufacturing contracted more than forecast this month. The Federal Reserve Bank of New York’s general economic index dropped to minus 10.41, the lowest since April 2009, from minus 5.85 in August.

Stock Prices

Stocks fell as data from China to Europe increased concern that a global economic slowdown is worsening. The Standard & Poor’s 500 Index decreased 0.5 percent to 1,454.21 at 10:31 a.m. in New York.

The Philadelphia Fed’s new orders measure climbed to 1 from minus 5.5 the prior month, and the shipments gauge slumped to minus 21.2, the worst reading since April 2009, from minus 11.3. Its inventory index of declined to minus 21.7, the lowest since October 2009, from minus 6.9.

Forty-seven percent of those surveyed said production in the current quarter would be lower than it was from April through June, and 45 percent said the deceleration would extend into the fourth quarter.

The employment index was minus 7.3 from minus 8.6. The measure of the workweek climbed to minus 7.3 from minus 14.6.

The index of prices paid fell to 8 from 11.2 the prior month, while a gauge of prices received decreased to minus 0.2 from 2.8.

Future Index

At the same time, manufacturers were more optimistic about the next six months as the Fed’s future index climbed to 41.2, the highest since January, from 12.5.

The Philadelphia Fed’s overall index isn’t composed of the individual measures, one reason some economists consider it a gauge of sentiment among manufacturers.

Economists monitor the New York and Philadelphia Fed factory reports for clues about the Institute for Supply Management national figures on manufacturing during the month. The ISM report is due on Oct. 1.

Figures from the New York Fed on Sept. 17 showed the so- called Empire State index dropped to minus 10.41, the lowest since April 2009, from minus 5.85 in August.

Industrial Production

Industrial production unexpectedly fell in August by the most since March 2009, a report from the Federal Reserve showed last week. The 1.2 percent decrease included declines in manufacturing, mining and utilities.

Companies concerned about the so-called fiscal cliff of fiscal policy changes include Caterpillar Inc. (CAT), the largest maker of construction and mining equipment.

“The thing that’s really hanging over us right now is there is a large tax increase pending here at yearend, and there are large spending cuts, government spending cuts, looming at yearend,” Michael DeWalt, director of investor relations at Peoria, Illinois-based Caterpillar, said in a Sept. 14 conference presentation. “If something is not done about that, it could be quite negative. So, it’s not a clear picture.”

Manufacturing, which makes up about 12 percent of the U.S. economy, will come under pressure from a slowdown in world trade. Exports decreased 1 percent in July as American manufacturers shipped fewer automobiles, metals and consumer goods abroad. Before that, U.S. exports were holding up, rising to a record $185.2 billion in June.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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