Inflation Worsening Despite Sagging Demand, Suggesting Stagflation: Philly Fed

Patrick Harker, President and CEO of the Federal Reserve Bank of Philadelphia, addresses an audience at the Philadelphia Fed in 2017. Courtesy of the Federal Reserve Bank of Philadelphia

U.S. inflation rates are getting worse despite a decline in consumer demand and a strong labor market, which suggests that the American economy is currently facing stagflation.

Manufacturing activity in the Philadelphia region for October, fell for the second consecutive month, despite rising inflationary pressures, reported the Federal Reserve Bank of Philadelphia on Oct. 20.

The Philadelphia Fed’s survey covers manufacturing in the Third Federal Reserve District, which includes eastern Pennsylvania, southern New Jersey, and Delaware.

Overall factory results for October suggest a stagflationary environment.

The current general activity and new orders indexes were negative this month, while the shipments index is at low, but in positive territory.

General business activity improved by 1.2 points to minus 8.7 from September and had been negative in four out of the last five months, with only a positive reading in August.

Economists had expected a better forecast this month of -5 from September’s -9.9.

The new orders index, which measures demand for manufactured goods, ticked up from -17.6 in September to -15.9 in October.

However, the share saying orders index fell to 32.3.

The orders outlook looks rather negative dropping to -16.7 from last month’s 6.

At least 42.5 percent of respondents expect orders to fall.

The diffusion index for future business conditions fell from -3.9 to -14.9.

The outlook regarding employment and cost is expected to rise, according to the indicators, despite slowing down somewhat from last month.

The employment index rose from 12 to 28.5 this month, more than offsetting its decline from last month.

The average workweek index improved, rising from -3.8 to 10.4.

The future employment index declined 10 points to 12.2.

The future capital expenditures index was essentially unchanged at 4.4.

The gauge of prices charged by manufacturers for finished products climbed from 29.6 to 30.8.

At least 40.7 percent of manufacturers said they had increased prices, while only 9.9 percent said they lowered them.

A price measure that covers manufacturer payments for components and materials, rose to 36.3 from 29.8.

About 45.9 percent of them reported that their costs had increased, while 9.6 percent reported that saying costs had declined.

“Manufacturing activity in the region continued to decline overall this month, according to the firms responding to the October Manufacturing Business Outlook Survey,” said the Philly Fed. 

“The survey’s indicators for general activity and new orders remained negative, and the shipments index was little changed at a low but positive reading.”

“The firms continued to report higher employment on balance, and both price indexes indicate overall increases in prices. The survey’s future general activity indexes suggest that the surveyed firms expect declines overall over the next six months,” the central bank branch concluded.