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Philadelphia Fed NonManufacturing Activity Suggest Continued to Expand in August
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Responses to the Nonmanufacturing Business Outlook Survey suggest that regional nonmanufacturing activity continued to expand in August. The firm-level index of general activity, new orders, and sales/revenues remained positive, and the firms continued to report overall increases in employment. Both price indicators remain elevated. Responding firms continue to expect growth over the next six months.
Current Indicators Remain Elevated
The survey’s indicators for current activity suggest continued improvement in the nonmanufacturing sector of the regional economy. The diffusion index for current general activity at the firm level increased 6 points to 41.1, its highest reading since June 2015 (see Chart). Nearly 51 percent of the firms reported increases in activity, compared with 9 percent that reported decreases. The new orders index fell for the third consecutive month, to 29.0, but remained above its historical average. The share of firms reporting increases in new orders (42 percent) exceeded the share reporting decreases (13 percent). The sales/revenues index increased for the second consecutive month, rising from 35.6 in July to 40.5 in August. Almost 55 percent of the firms reported increases in sales/revenues, while 14 percent reported declines.
Employment Indicators Strengthen
Responding firms continued to report overall increases in both full-time and part-time employment. The full-time employment index edged up from 29.5 in July to 32.2 in August, marking an increase for the third consecutive month. The share of firms reporting increases in full-time employment (36 percent) exceeded the share reporting decreases (4 percent); a majority (60 percent) reported no change. The part-time employment index increased 11 points to 21.7, and the average workweek index fell 13 points to 16.4. The wages and benefits indicator ticked down to 46.4.
Firms Continue to Report Overall Price Increases
The index for prices paid for inputs fell slightly, while the index for prices received for the firms’ own products and services rose in August. The prices paid index fell 1 point to 27.4. Thirty percent of the respondents reported increases in input prices, while only 3 percent reported decreases. Most firms (53 percent) reported no change in input prices. The prices received index rose from 12.4 in July to 26.9 in August. Nearly 31 percent of the firms reported increases in prices received, while only 4 percent reported decreases. Fifty-four percent of the firms reported no change in their own prices.
Firms' Forecasts for Own Prices and Inflation Edge Higher
In this month’s special questions, the firms were asked to forecast the changes in the prices of their own products and services and for U.S. consumers over the next four quarters (see Special Questions). Regarding their own prices, the firms’ median forecast was for an increase of 3.0 percent, up from a revised 2.0 percent when the question was last asked in May. When asked about the rate of inflation for U.S. consumers over the next year, the firms’ median forecast was 3.0 percent, an increase from the previous forecast of 2.8 percent in May. The firms expect their employee compensation costs (wages plus benefits on a per employee basis) to rise 3.0 percent over the next four quarters, the same as the previous forecast. The firms’ forecast for the long-run (10-year) inflation rate increased from 2.5 percent to 3.0 percent.
Firms Anticipate Continued Growth
The respondents continued to expect growth in nonmanufacturing activity over the next six months. The diffusion index for future activity at the firm level increased 9 points to 50.7 (see Chart). Over 62 percent of the firms expect an increase in activity at their firms over the next six months, compared with 12 percent that expect a decline. The future regional activity index rebounded from its decline last month, rising 15 points to 46.2.
Summary
Results from this month’s Nonmanufacturing Business Outlook Survey suggest improvement in regional nonmanufacturing activity. The indicators for firm-level general activity and sales/revenues rose, and the firms continued to report overall increases in both full-time and part-time employment. The respondents remain optimistic about growth over the next six months.
Posted: August 21, 2018 Tuesday 08:30 AM