Manufacturing is Back! But So Is Inflation

Philly Fed Index Highest Since 1970s

The newest reading on the Philadelphia Federal Reserve Index for business activity suggests that manufacturing is returning to pre-pandemic levels.

The Index jumped to 51.8 in March from 23.1 in February. That’s the highest reading in nearly 50 years – since 1974 – and significantly surpasses what economists had anticipated. (Most economists surveyed thought the reading might slip to 22.)

Within the index, there are some interesting data points. For example:

  • New orders rose to 50.9 in March. Up from 23.4 in February.

  • The employment index grew for the third straight month.

  • The outlook for business in the future improved significantly to 61.6 in March versus 39.5 the month prior.

  • Meanwhile, in what some might consider concerning for inflation, the prices paid index jumped to 74.4 in March from 54.4 in February. This is the highest increase since 1980. 

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The reading is a positive one suggesting the economy is regaining its footing in 2021. As the pandemic subsides, the economy should return to its pre-pandemic levels. However, inflation is something to continue watching.

Just as it showed up in this index, inflation is becoming evident in recent reads on producer and consumer prices. Many economists question how the government can spend $1.9 trillion in stimulus, alongside a Federal Reserve that maintains low rates, and not create an inflationary environment.

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