Philly Fed manufacturing index drops more than expected in June

Manufacturing conditions in the Philadelphia region deteriorated more than expected in June, according to a survey released on Thursday.

The index for current manufacturing activity in the region fell to 19.9 from a revised reading of 34.4 in May, missing economists’ expectations of 29.0. Still, it remained above the zero reading that separates contraction from expansion.

Meanwhile, the new orders index slumped to 17.9 this month from 40.6, while the shipments index ticked up to 28.7 from 25.8 in May. The prices paid index slipped to 51.8 from 52.6 and the inventories index nudged up to 10.2 from 8.1.

The diffusion index for general activity fell for the third month in a row, to 34.8 in June from 38.7 in May, with nearly 48% of firms saying they expect increases in activity in the next six months, while 13% expect a decline.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said: "The May jump to a 12-month high, with new orders soaring to a 45-year high, always looked unsustainable. The June drops in both the headline and orders indexes - the latter plunged to 17.9 from 40.6 - probably is just a correction rather than a response to the latest round of tariff threats. The Philly Fed district includes only two relatively small ports, Wilmington and Philadelphia, so it is much less sensitive to the trade spats than other regional Fed surveys, notably the Richmond Fed.

"We now expect the headline index to hover around the 20 mark; solid, but it's hard to see sustainable upside from here. The survey is consistent with little change in the national ISM manufacturing index."