By Safiyah Riddle
(Reuters) – Manufacturing activity in the U.S. Mid-Atlantic region grew at its strongest pace since April 2022 in August, according to a report released on Thursday, as new orders surged amidst robust consumer demand.
The Philadelphia Federal Reserve’s monthly survey of goods producers released on Thursday showed the general business activity index leaped to 12.0 from -13.5 in July, increasing by the largest monthly margin since April 2021. The jump from a negative to positive reading revealed that factories entered a period of expansion after a year of uninterrupted contraction, as a flurry of consumer spending pushed the new order index to 32 in August up from negative 16 in July.
The increase in manufacturing activity in the region vastly outpaced median forecasts from economists polled by Reuters, who predicted that the index would remain in contractive territory at -10.
Thursday’s report came on the heels of a substantial increase in retail sales in August. Resilient spending adds to the growing body of evidence that the economy could avoid a recession, but could be concerning to the Federal Reserve, which has tried to tame consumer demand with 525 basis points worth of interest rate hikes since March 2022.
Firms across the region were not confident that these trends would last, however, with the six-month business activity outlook dropping by over 25 points to 3.9 in August from a near two-year high of 29.2 in July – the biggest monthly drop in that index since 2008.
The worsening future outlook dovetailed with a modest decrease in profit margins in August, with firms reporting a decrease in prices received driving the index down 9 points to 14.1. Producers expected price cooling to continue throughout the year, forecasting an expected increase of 4.0% over the next 12 months, down from a reported 5% reported increase over the past year. At the same time, prices paid for inputs ticked up slightly with nearly 30% of manufacturers paying more to produce goods and two-thirds paying the same amount as last month.
(Reporting by Safiyah Riddle; Editing by Chizu Nomiyama)