Factory conditions further deteriorate after October's sharp drop
WASHINGTON (MarketWatch) -- Manufacturing conditions in the Philadelphia region deteriorated to their worst level in 18 years in November, the Federal Reserve Bank of Philadelphia reported Thursday.
The Philly Fed diffusion index fell to negative 39.3 in November from negative 37.5 in October.
This is the lowest level since the recession of the early 1990s when the index bottomed out at negative 48.2.
Economists were expecting a continued slide in the Philly index to negative 40.0 in November, according to a survey conducted by MarketWatch. See Economic Calendar.
The index had crashed last month from 3.8 in September.
Earlier in the week, the New York Fed said its Empire state index fell to a record low negative 24.6 in November.
"The tone of the Philly Fed report is consistent with recession signals given by other manufacturing surveys," wrote the economic team of Dresdner Kleinwort in a note to clients.
The Philly Fed and Empire state indexes are seen as providing good clues about the national manufacturing index to be released in early December by the Institute for Supply Management. The ISM, in turn, is considered the best real-time gauge of the health of the economy.
In October, the ISM manufacturing index plunged to 38.9, the worst reading since 1982.
Readings below zero in the Philly Fed diffusion index indicate contraction in activity. The index measures the breadth of economic activity across firms.
In November, 49.7% of the companies surveyed said business was worse, 10.3% said conditions were better, and 33.3% said activity was the same. Read survey.
Most of the sub-indexes fell further into negative territory, indicating contraction in the sector is picking up steam.
Expectations for the next six months also declined in November.
In another sign of weakness, the Labor Department reported initial jobless claims rose by 27,000 to 542,000 last week, a 16-year high. See full story.
In addition, the Conference Board said the index of leading economic indicators fell sharply in October. See full story.
Details
In December, the new orders index fell to negative 31.4 from negative 30.5. The shipments index remained steady at negative 18.8. The employment index fell to negative 25.2 from negative 18.0. The average workweek inched down to negative 19.7 from negative 18.4.
Inflation disappeared in November.
The prices paid index fell to negative 30.7 from 7.2 in October. This is the first negative reading since 2003. The prices received index fell to negative 15.5 from 5.3.
In a special question, companies reported that production would decrease in the fourth quarter and employment would fall over the next six months. Layoffs were the most frequently cited method of achieving the planned reductions.
