Research >> Economics
Philadelphia Fed Outlook Reported Activity edged down in October
|
Results from the October Manufacturing Business Outlook Survey suggest that regional manufacturing conditions continued to improve. Indexes for general activity, new orders, and shipments were all positive this month. But firms reported continued weakness in overall labor market conditions. Firms expect continued growth for manufacturing over the next six months and are becoming more optimistic about employment expansion.
New Orders Pick Up, but Employment Still Not Growing
The index for current manufacturing activity in the region edged down, from a reading of 12.8 in September to 9.7 this month. The index has now been positive for three consecutive months. Other broad indicators showed notable improvement. The new orders index improved markedly this month, increasing from 1.4 in September to 16.3 in October. The percentage of firms reporting increases in new orders this month rose to 40 percent from 30 percent last month. The current shipments index also improved, rising 24 points to 15.3. The delivery times, unfilled orders, and inventories indexes remained weak, however, with all registering negative readings, although they were less negative than in September.
Firms reported continued weakness in manufacturing employment. The percentage of firms reporting a decrease in employees in October (17 percent) exceeded the percentage reporting an increase (13 percent). The current employment index edged up slightly to -4.0. The percentage of firms reporting a shorter workweek (19 percent) was slightly greater than the percentage reporting a longer workweek (17 percent), and the average workweek index remained negative at -2.2.
Firms Report Moderated Price Pressures
Although still positive, the prices paid index decreased 14 points to 7.0. Although nearly 73 percent of the firms reported that input prices were unchanged, the percentage of firms reporting price increases (15 percent) exceeded the percentage reporting price decreases (8 percent). With respect to prices received for firms’ own manufactured goods, the largest percentage of firms (81 percent) reported no change in prices. The percentage of firms reporting price decreases for their own products (9 percent) exceeded the percentage reporting price increases (6 percent). The index for current prices received declined 13 points, to -3.7.
Expectations Are Still Positive, and Employment Forecast Improves
Overall, firms remain optimistic about business conditions over the next six months, and prospects for employment continue to be upbeat. The diffusion index for future activity declined from 37.5 in September to 32.6 in October but remains slightly above its average reading over the past 12 months (see Chart 1). Nearly 45 percent of the firms expect increases in activity over the next six months, and 52 percent expect increases in new orders. The future employment index improved for the fourth consecutive month, increasing slightly from 24.9 to 25.9. Nearly 32 percent of the firms said they expected to expand employment over the next six months, while 6 percent expected to reduce employment.
Lower Rates of Utilization Are in Evidence
For this month’s special questions, manufacturers were asked about current capacity utilization rates compared with the same time last year. The average capacity utilization rate reported was nearly 74 percent. The responding firms indicated, however, that the current rate was lower than that from one year earlier (75 percent). For the U.S., the capacity utilization rate for the manufacturing sector, overall, is estimated to be almost 75 percent, slightly lower than one year ago.
Firms were also asked about their plans for different categories of capital spending next year. For only one category (noncomputer equipment), the share of firms expecting to increase spending was higher than the share of firms expecting to decrease spending. More firms expected decreases than expected increases next year for software, computer and related hardware, structures, and energy-saving investments. Firms with higher plant utilization rates were more likely to report plans to increase investments. For example, the current utilization rate among firms expecting to increase spending on structures (83 percent) was notably higher than those expecting to decrease spending on structures (70 percent).
Summary
Responses to the October Manufacturing Business Outlook Survey suggest continued improvement in the region’s manufacturing sector. Indexes for general activity, new orders, and shipments all indicated expansion this month. However, firms reported continued reductions in overall employment. Firms remained optimistic about increases in overall business activity over the next six months.
Posted: October 20, 2016 Thursday 08:30 AM