EmailFollowing its first contraction since September 2010, the Philadelphia Fed's Business Outlook rebounded from -7.7 in June to 3.2 in July. The Briefing.com consensus expected the Business Outlook to increase to 0.0.
While the Business Outlook level is still well below the multi-decade highs reached in the beginning of the year, the quick return to an expansion phase suggests the June decline may have been exacerbated by temporary problems including the parts shortages following the Japanese earthquake and rising oil prices. If manufacturing activity continues to expand next month, the June decline will be viewed as an anomaly and not a sign of underlying weakness.
The manufacturers surveyed in the report fully support the idea that the problems in June are not a lasting concern. The six-month outlook index spiked from 2.5 in June -- its lowest level since December 2008 -- to 23.7.
New orders showed a modest recovery as the index increased from -7.6 in June to 0.1 in July. This was just enough to keep shipments growth steady. Shipments could turn negative if new orders contract in August. Unfilled orders -- which are needed to maintain steady production and shipping -- remained at 16.3 for the second consecutive month.
The employment index increased from 4.1 in June to 8.9 in July. While the correlation between the Business Outlook and manufacturing payrolls is limited, the jump in the employment index gives hope that payroll gains may be stronger than currently anticipated.
