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Philly Fed Index Indicates Slower Contraction In May

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A report released by the Federal Reserve Bank of Philadelphia on Thursday showed a slowdown in the pace of contraction in regional manufacturing activity in the month of May.

The Philly Fed said its diffusion index for current general activity climbed to a negative 43.1 in May from a negative 56.6 in April. Economists had expected the index to increase to a negative 41.5.

The index bounced off the nearly 40-year low set in the previous month, but a negative reading still indicates a contraction in regional manufacturing activity.

The rebound by the headline index came as the new orders and shipments indexes showed substantial recoveries from the all-time lows set in April.

The new orders index spiked to a negative 25.7 in May from a negative 70.9 percent in April, while the shipments index surged up to a negative 30.3 from a negative 74.1.

The number of employees index also showed a significant rebound, jumping to a negative 15.3 in May from a negative 46.7 in April.

The report showed the prices paid index also climbed to a positive 3.2 in May from a negative 9.3 in April, while the prices received index rose to a negative 3.1 from a negative 10.6.

Despite the current weakened conditions, the Philly Fed said respondents remained optimistic about growth over the next six months.

The diffusion index for future general activity advanced to 49.7 in May from 43.0 in April, as over 62 percent of firms expect increases in activity over the next six months compared to 13 percent that expect declines.

Last Friday, the New York Fed released a report showing regional manufacturing activity continued to deteriorate significantly in the month of May, although the pace of contraction slowed considerably from the previous month.

The New York Fed said its general business conditions index jumped nearly thirty points to a negative 48.5 in May from a negative 78.2 in April.

While a negative reading indicates a continued contraction in regional manufacturing activity, the index came in well above economist estimates for a reading of negative 63.5.

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