Economic activity continues to slow nearly everywhere you look. Today’s look-see is in the Philly Fed Business Outlook Survey.

Responses to the Business Outlook Survey suggest that regional manufacturing activity weakened in June. The survey’s indicators for activity and new orders turned negative this month, while indicators for shipments and employment fell but remained slightly positive. Indicators for prices show a continuing trend of moderating price pressures. The broadest indicator of future activity fell sharply in June, recording its lowest reading in 31 months.

Price Pressures Show Moderation

Indexes for prices paid and prices received declined from May and continue a trend of moderating price pressures in recent months. The prices paid index declined sharply, by 22 points this month. Still, 37 percent of the firms reported higher prices for inputs this month, and 10 percent reported a decline. On balance, firms reported a slight rise in prices for manufactured goods: 17 percent reported higher prices for their own goods this month; 12 percent reported price reductions. The prices received index decreased 12 points, its second consecutive monthly decline.

Six‐Month Indicators Fall Sharply Again The future general activity index decreased 14 points this month and has now dropped 61 points over the last three months (see Chart). The indexes for future new orders and shipments also declined, decreasing 9 and 14 points, respectively. The index for future employment fell 17 points and has declined 32 points in the last two months. Still, slightly more firms expect to increase employment over the next six months (21 percent) than expect to decrease employment (16 percent).

June Business Conditions vs. May

click on any chart or table to see sharper image

In Contraction

  • General Business Conditions plunged 11.6 points to -7.7
  • New Orders plunged 13 points to -7.6
  • Unfilled Orders fell 8.5 points to -16.3
  • Delivery Times plunged 18.2 points to -16.3
  • Inventories fell 3.1 points to -8.5

Price, Profit Squeeze

  • Prices Paid plunged 21.5 points to +26.8
  • Prices Received plunged 12.4 points to +4.4

Prices paid fell more than prices received but from a much higher level. Prices received is on the verge of contraction. A price squeeze (profit squeeze) is on.

Business Conditions Expectations 6 Months from Now

Employment Outlook

Looking ahead 6 months the survey is positive, but barely. Unfilled orders, delivery times, and inventory are currently in contraction and expected to remain so. The average work week is projected to contract.

If it plays out this way, and I suggest it too optimistic, wages and hiring will be weak at best.

More on the Profit Squeeze

The special questions for June 2011 are interesting.

More businesses than not are unable to pass on price hikes. However, businesses had to pay increased prices for items, especially transportation costs.

This was an anemic report from every angle, yet treasuries are barely up.

Mike “Mish” Shedlock
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