Philadelphia Fed and Empire State manufacturing surveys reflect further expansion in October

*The headline indexes in key regional manufacturing sentiment surveys were mixed in October, but the improvement in the surveys’ underlying details on current conditions and demand suggest that manufacturing activity continues to rebound solidly as businesses rebuild inventories (U.S. inventory rebuilding and production: a positive note, September 23, 2020).

*The Philadelphia Fed’s headline manufacturing sentiment index surged by 17.3pts to 32.3 in October and its new orders and shipments indexes both jumped to their second highest levels on record, but the Empire State headline manufacturing sentiment index declined by 6.5pts to 10.5, contrasting the increases in its new orders and shipments indexes (Chart 1).

*Manufacturers in the Philadelphia region were also more optimistic about future conditions than those in New York. The six-month-ahead general business conditions index in the Philadelphia Fed manufacturing survey increased by 6.1pts to 62.7 but declined by 7.5pts to 32.8 in the Empire State survey (Chart 2).

The ISM-adjusted index for the Empire State manufacturing survey (average of new orders, shipments, employment, supplier deliveries, and inventories subindexes) – which better reflects underlying manufacturing conditions than its headline sentiment index, which is based off a single question - was unchanged at 52.2, suggesting that manufacturing activity in the New York region increased at roughly the same pace in October as it did in September. The ISM-adjusted Philadelphia Fed index jumped by 4.2pts to 61.5, well into expansion territory (above 50) and indicative of a rapid expansion in manufacturing activity in the Philadelphia region (Chart 3).

The Philadelphia Fed’s shipments (+9.9pts to 46.5), new orders (+17.1pts to 42.6), and average workweek (+17.5pts to 25.3) indexes all surged to near record-highs in October (Chart 4). Notably, the unfilled orders index within the Philly Fed survey increased by 7.9pts to 8.3 in October, the highest since December 2019, which bodes well for continued growth in near-term production in the region. The Empire State manufacturing survey’s details on current activity and demand all improved, but were not nearly as robust as the Philly Fed’s measures: shipments (+3.7pts to 12.3), new orders (+5.2pts to 17.8), and average workweek (+9.4pts to 16.1). See Chart 5.

Similar to the current conditions section of the manufacturing surveys, the details of the six-month-ahead section were rosier for the Philadelphia Fed survey than for the Empire State Survey. The Empire State’s future capex (-6.8pts to 11.9) and technology spending (-2.5pts to 11.9) indexes both declined, while the Philadelphia Fed manufacturing capex index jumped by 5.5pts to 36.5 (Chart 6).

Consumption of goods has surged, exceeding pre-pandemic levels and leading to a sizable liquidation of inventories (Chart 7). This strong rebound in demand for goods and the need to rebuild inventories at the retail level is leading manufacturers to boost production.

Chart 1:

Chart 2:

Chart 3:

Chart 4:

Chart 5:

Chart 6:

Chart 7:

Roiana Reid, roiana.reid@berenberg-us.com

Member FINRA & SIPC
This email and any files or attachments transmitted with it may contain confidential or privileged information and are intended solely for the use of the intended recipient. If you are not the intended recipient, please do not copy, retain, disclose or use any part of the message or its attachments. Please notify the sender immediately by return email and destroy or delete any copies. Dissemination or use of this information by anyone other than the intended recipient is unauthorized and may be illegal. Communications by email cannot be guaranteed to be secure or error-free. Emails and their attachments are subject to being intercepted, becoming corrupted, getting lost or delayed, or may contain viruses. Therefore, neither the sender nor Berenberg Capital Markets LLC (BCM) accepts any liability for any errors or omissions in the content of this message or problems in its transmission, including those arising as a result of its transmission over the internet.
BCM does not assume liability for the correctness and completeness of all information given and/or attachments contained herein. The provided information has not been checked by a third party, especially an independent auditing firm. BCM explicitly points to the stated date of preparation. The information given can become incorrect due to passage of time and/or as a result of legal, political, economic or other changes. BCM does not assume responsibility to indicate such changes and/or to publish an updated document. Any document(s) or attachment(s) is meant exclusively for institutional investors and market professionals, but not for private customers. It is not for distribution to or the use of private investors or private customers.
In light of upcoming regulatory changes, please be informed that BCM will continue to share information with you until unsubscribe@berenberg-us.com receives your termination/deletion request. For more information about the General Data Protection Regulation (GDPR) and our privacy policies please refer to https://www.berenberg-us.com/legal-notice. BCM reserves all the rights in this communication. No part of this communication or its content may be rewritten, copied, photocopied or duplicated in any form by any means or redistributed without BCM’s prior written consent.
The information contained herein and sourced may have been adopted from various news sources, for example, Bloomberg, Reuters, Street Account and various other sources. BCM does not claim accuracy, completeness, timeliness, suitability, or otherwise regarding all the information on the securities, stock markets, or developments referred to within. On no account should the Content be regarded as a substitute for the recipient procuring information for himself/herself or exercising his/her own judgments. BCM is not responsible for any recipient(s) use of this information. This Content is not a solicitation or an offer to buy or sell any of the securities contained herein. This information does not constitute a recommendation or take into account the particular investment objectives, financial situations, or needs of clients. Clients should consider whether any advice or recommendation in this Content is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. The price and value of securities which may be referred to in this Content and the income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain securities.