Philadelphia manufacturing index hits lowest in 6 months

Manufacturers in the US mid-Atlantic region this month reported a steeper than expected decline in activity to the lowest level in six months, signalling the weakness in the industrial economy has yet to subside.

The headline general business activity index of the Philadelphia Federal Reserve’s manufacturing survey fell 10.1 points to 0.3 in December, data on Thursday showed. That was the weakest reading since June and missed economists’ expectations for a more modest drop to 8, according to a Reuters survey.

The details of the report showed the new orders and shipment sub-indices improved but the indicator for employment declined.

Manufacturing has been hit this year by the US China trade war, which has weighed on company’s spending plans The responses for the Philly Fed survey were likely recorded before the world’s two largest economies last week reached a phase one deal to partially ratchet down their trade war.

“This ought to lift sentiment a bit, but it’s not a game-changer for manufacturers, because the 25 per cent tariff remains on almost all imported Chinese capital and intermediate goods,” said Ian Shepherdson, economist at Pantheon Macroeconomics.

Moreover, economists have cautioned that just as the outlook for manufacturing was starting to improve following the trade agreement, Boeing’s move to halt production of its 737 Max jets, which were involved in two fatal crashes, will weigh on factory orders and economic growth.

A separate report showed the number of Americans filing for unemployment benefits fell from a two-year high, signalling the labour market remains healthy.

Initial jobless claims fell to 234,000 in the December 14 week down from 252,000 the previous week, but were higher than economists had forecast. The uptick in the previous report was widely attributed to the timing of the Thanksgiving holiday.

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Mohamed El-Erian, chief economic adviser to Allianz, said the jobless figures were “partial and noisy” but added “this is the fourth data point in a week suggesting that we should keep a close eye on the health of the household sector, the driver of the recent US economic outperformance”.

The data come as the Federal Reserve this month opted to leave interest rates unchanged following three rate cuts since this summer. Policymakers at the central bank have signalled they will leave rates unchanged next year and that policy will remain steady until inflation picks up.



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