Research >> Economics
Philadelphia Nonmanufacturing activity slowed in January
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The pace of regional nonmanufacturing activity slowed in January, according to firms responding to this month's Nonmanufacturing Business Outlook Survey. The survey's indicators for general activity, new orders, and sales or revenues all decreased but remained positive. Responding firms continue to be optimistic about activity over the next six months.
Nonmanufacturing Activity Slowed
The diffusion index for current activity at the firm level decreased from 47.5 to 8.8 in January, its lowest reading since February 2014 (see Chart above). The percentage of respondents reporting increases in activity (44 percent) exceeded the percentage of respondents reporting decreases (35 percent). Responding firms had similar sentiments about activity in the region. About 41 percent of the respondents indicated increasing activity in the region compared with 32 percent that indicated decreasing activity, and the general activity index also fell to 8.8.
Demand for firms' services, as measured by the new orders and sales/revenues indexes, decreased but remained positive this month. The new orders index decreased from 25.0 in December to 14.7 in January. The percentage of firms reporting increases in new orders in January (41 percent) was little changed from last month; however, the percentage of firms reporting decreases rose from 18 percent last month to almost 27 percent this month. The sales/revenues index experienced a sharper drop, falling 24 points to 8.8, its lowest reading since February 2014, as fewer firms reported increases this month compared with last month.
Hiring Continued but Hours Fell
Survey results suggest mixed labor market conditions this month, on balance. The full-time employment index decreased 5 points, to 17.6. More than 29 percent of the respondents reported increases to full-time staff levels, down slightly from 33 percent last month. The part-time employment index increased from 15.0 in December to 20.6 in January. The workweek index decreased for the third consecutive month, to -5.9, and registered its lowest reading since January 2012.
Firms Reported Slight Increase in Input Prices
The prices of inputs rose for firms on net in January. The percentage of respondents reporting increases in input prices (21 percent) exceeded the percentage of respondents reporting decreases (6 percent). The prices paid index increased 10 points, to 14.7. The share of firms reporting no change in input prices decreased slightly from last month to 56 percent. Firms reported near steady prices for their own goods and services, as indicated by the prices received index decreasing 2 points to 2.9. Half of the responding firms also reported no change in prices, while the percentage of firms reporting increases (18 percent) edged out the percentage of firms reporting decreases (15 percent).
Capital Expenditures Growth Remained Positive
Firms continued to report increases, on net, in capital expenditures this month, particularly for equipment and software, though both indexes retreated from last month's readings. More than 32 percent of the respondents reported increases in equipment and software spending. The equipment and software expenditures index decreased 7 points, to 20.6, but remains near its average reading for 2014. The index for expenditures on physical plant remained positive but fell 7 points, to 2.9.
Future Indicators Remain High
Optimism about future activity over the next six months both at individual firms and in the region remained widespread despite decreases in both index readings. None of the respondents expect activity six months from now to decrease either at their own firms or in the region. Nearly 62 percent of the respondents expect activity to increase at their firms; however, the firm-level future general activity index decreased 11 points, to 61.8 (see Chart above). The future activity index for the region also decreased but remained high, at 82.4.
Firms Benefited from Lower Energy Prices
In this month's special question, respondents were asked about the effect of lower oil prices on their businesses (see Special Question). On net, lower oil prices have had a positive effect for local nonmanufacturing firms. Nearly 55 percent of the respondents reported a positive impact, compared with 9 percent of the respondents who reported a negative impact. More than 21 percent of the firms reported no impact because of the lower prices.
Summary
The January Nonmanufacturing Business Outlook Survey results suggest slower expansion in the region among nonmanufacturing firms. Index readings for general activity at both the company and regional levels, new orders, and sales/revenues remained positive but decreased from December readings. Firms remained optimistic about future growth.
Posted: January 20, 2015 Tuesday 10:00 AM