In March, the Philadelphia Fed manufacturing index showed a slight increase after falling significantly in the month before. The headline index rose from -41.3 to -35, while an outcome of -39 was expected. Looking at the details, shipments (-26.5 from -32.4), unfilled orders (-22.8 from -32.1) and average workweek (-31.6 from -44.9) increased. New orders (-40.7 from -30.3), inventories (-55.6 from -24.3) and number of employees (-52.0 from -45.8) deteriorated further. Both prices paid and prices received dropped further. Although the headline index improved somewhat, the new orders sub-index dropped to a new cyclical low which raises fears that manufacturing activity will remain weak in the next few months.

In the week ended March 14, initial claims dropped by 12 000 from an upwardly revised 658 000 to 646 000, slightly below the consensus estimate of 655 000. More surprising however was the development in continuing claims, which are reported with a one week lag. Continuing claims rose by 185 000 to 5 473 000, while the previous figure was downwardly revised from 5 473 000 to 5 288 000. The ever rising number of continuing claims indicates that jobless people have difficulties to find other work.

Leading indicators for the month of February dropped by 0.4%, while an outcome of -0.6% was expected but the previous two figures were sharply downwardly revised. Negative contributions came from jobless claims, stock prices, consumer expectations and average workweek, while the interest rate spread, pace of deliveries, building permits, M2 money supply, consumer goods orders and orders of nondefence capital goods showed a positive contribution.


Other: recession puts a drag on UK public finances

In the UK, public sector net borrowing came out at 9.0B in February, above the consensus estimate of 8.3B. This is the largest budget deficit for the month of February in at least 16 years. The bigger than expected deficit was due to a decline in tax receipts and rising government spending as unemployment rose sharply. Tax income plunged by 9.8% with cash receipts of corporation tax falling by 11% and valueadded tax declining by 8.3%. In the coming months, the recession is expected worsen public finances further. M4 money supply growth slowed from 2.4% to 1.4% in February, in line with the consensus estimate.

In the UK, the March CBI industrial trends survey showed a further deterioration in total orders (-58 from -56), while a slight improvement was expected. Also export orders worsened (-51 from -49) and the outlook for the next three months remains gloomy. Volume of output for the next three months dropped from -44 to -48, while the outlook for prices rose somewhat (-10 from -13). These data indicate that UK manufacturers are becoming ever more pessimistic about both the current situation and the expectations for the next three months.