Philly Fed Manufacturing Index Plunges Fourth  Month, Expectations Gauge Lowest Since 1979

The Philadelphia Fed July 2022 Manufacturing Business Outlook Survey took a steep plunge into negative territory. 

• The diffusion index for current general activity decreased for the fourth consecutive month, falling 9 points to -12.3 in July. 
• Most firms reported no change in activity (61 percent), the share of firms reporting decreases (24 percent) exceeded the share of firms reporting increases (12 percent). 
• The index for new orders declined for the second consecutive month, from -12.4 to -24.8.
• Current shipments index rose from 10.8 to 14.8. 
• The indexes for current inventories and unfilled orders were negative, at -9.3 and -10.4, respectively.

The increase in shipments relative to new order is not a positive thing. Back orders are being filled, but new orders are in steep decline. Layoffs will result.

Expectations 

• The diffusion index for future general activity decreased 12 points to -18.6, its lowest reading since December 1979 
• More than 35 percent of the firms expect decreases in future activity (down from 42 percent last month), compared with 17 percent that expect increases (down from 36 percent).
•  The future new orders index declined 5 points to -12.4, while the future shipments index rose 9 points to 12.8. 
• The future employment index rose 6 points to 16.5. Nearly 56 percent of the firms expect steady employment levels over the next six months, 29 percent of the firms expect to increase employment, and 13 percent expect employment declines. 
• The future capital expenditures index fell 7 points to 4.4, its lowest reading since March 2013, as 81 percent of the firms expect no change in spending over the next six months and only 10 percent expect increases.

Prices Received vs Prices Paid

Price inflation has peaked. But the wide discrepancy between prices paid and received suggests falling profits and falling “real” inflation-adjusted output.

Philly Fed Special Questions

Employment Synopsis 

• Employment costs rising
• Nearly 56 percent of the firms expect steady employment levels over the next six months, 29 percent of the firms expect to increase employment, and 13 percent expect employment declines. 

With prices received falling, there is a squeeze on margins. This report ties in nicely with two of my expectations: minimal job losses but huge profit recession.

ISM Will Follow Philly Fed

Minimal Rise in Unemployment 

Let’s investigate recession history of job losses and what’s likely this time. 

For discussion, please see Why I Expect a Minimal Rise in Unemployment This Recession

That’s the relatively good new. The bad news is on corporate profits and the stock market.

Why Earnings and the Stock Market Will Get Crushed

Here’s the case for an earnings smash accompanied by a continuation of the stock market crash: Artificial Wealth vs GDP: Why Earnings and the Stock Market Will Get Crushed

This post originated at MishTalk.Com.

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