Philadelphia Fed Survey Shows Highest Price Gauges Since 1980s

Inflationary pressures are building further as firms expect to charge higher prices and boost worker pay, according to a regional Federal Reserve Bank report.

The Philadelphia Fed’s latest survey of factories showed that producers’ accelerating input costs helped drive the May index of prices received to its highest level in 40 years.

Supply-chain bottlenecks, mounting wage pressures and soaring materials costs are testing profit margins, prompting companies to increase their prices. A special question in the survey showed firms will raise their prices 5% over the next year, up from a February projection of 3% and flaming concerns about the inflationary pressures bubbling across the economy.

Philadelphia Fed Survey Shows Highest Price Gauges Since 1980s

The data also showed the measure of prices paid surged this month to the highest level since March 1980. Nearly 77% of firms reported increases in input costs, while none reported a decrease.

In a sign that inflation is extending beyond what Fed policy makers view as a temporary increase in price pressures tied to supply challenges, the Philadelphia Fed bank’s survey showed firms expect compensation to rise 4% over the next year. That’s up from the 3% median projection made in February.

Meanwhile, the gauge of unfilled orders surged to its highest level since 1973 amid ongoing capacity constraints, highlighting the damping effect bottlenecks and shortages are having on the manufacturing recovery.

Philadelphia Fed Survey Shows Highest Price Gauges Since 1980s

The overall measure of manufacturing activity in the Philadelphia Fed region eased in May to 31.5 from a 48-year high the prior month. The figure, while softer than expected, suggests factory activity remained robust. Measures of new orders and shipments softened from April, though remain elevated.

The report also showed manufacturing employment continued to increase in the region, though those increases were less widespread. About a quarter of firms reported higher employment. The majority reported no change.

Survey responses were collected from May 10-17.

Philadelphia Fed Survey Shows Highest Price Gauges Since 1980s

With supply constraints making it difficult for companies to meet demand, firms are drawing down inventory. A government report last week showed the ratio of inventories compared with sales at all businesses dropped to the lowest in data back to 1980. Unsold merchandise at retailers alone in March were also the leanest on record, relative to sales.

Those figures suggest production is poised to strengthen in coming months, provided that materials shortages begin to ease.

©2021 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.