Research >> Economics
Philadelphia Fed Outlook Reported Activity continued to improve in January
Economic conditions continued to improve in January, according to the firms responding to this month’s Manufacturing Business Outlook Survey. The indexes for general activity, new orders, and employment were all positive this month and increased from their readings last month. Manufacturers have generally grown more optimistic in their forecasts over the past two months. The future indexes for growth over the next six months, including employment, continued to improve this month.
Most Current Indicators Show Broad Improvement
The index for current manufacturing activity in the region increased from a revised reading of 19.7 in December to 23.6 this month.* Forty percent of the firms reported increases in activity this month; 17 percent reported decreases. The general activity index has remained positive for six consecutive months, and the activity index reading was the highest since November 2014 (see Chart 1). The other broad indicators suggest sustaining growth. The index for current new orders increased 11 points this month, with 41 percent of the firms reporting increases. The shipments index remained at a high reading but fell 1 point. Both the delivery times and unfilled orders indexes were positive for the third consecutive month, suggesting longer delivery times and an increase in unfilled orders.
Firms reported an increase in manufacturing employment this month. The percentage of firms reporting an increase in employment (19 percent) exceeded the percentage reporting a decrease (6 percent). The current employment index improved 9 points, registering its second consecutive positive reading. Firms also reported an increase in work hours this month: The average workweek index, which was essentially unchanged from December, has now been positive for three consecutive months.
Firms Report Price Increases
Price increases were more widespread this month. On the cost side, nearly 35 percent of the firms reported increases in the prices paid for inputs; only 2 percent reported paying lower prices. The prices paid index edged 4 points higher and has now increased nearly 24 points in the past three months (see Chart 2). With respect to prices received for firms’ own manufactured goods, 31 percent of the firms reported higher prices, up from 16 percent in December. The prices received index increased 19 points to its highest reading since July 2008.
Six-Month Indexes Show Continued Improvement
The diffusion index for future general activity increased from a revised reading of 48.7 in December to 56.6 this month. The index is now at its highest reading since August 2014 (see Chart 1). Nearly 67 percent of the firms expect increases in activity over the next six months. The indexes for future new orders and shipments also showed notable improvement this month, increasing 6 points and 12 points, respectively. In addition, firms marked up their forecasts for employment increases. Forty-three percent of the firms expect increases in employment over the next six months, up from 35 percent in December. The future employment diffusion index increased 14 points.
Firms Expect to Increase Production to Meet Rising Demand
In Special Questions, firms were asked to characterize current demand and production of their manufactured products over the past few months and to forecast their production increases for the first quarter of the year. Most firms (61 percent) reported an increase in underlying demand, but 56 percent characterized the increase as moderate. Sixty-three percent of the firms anticipate increasing production in the first quarter, and 25 percent expect to cut production. Firms were also asked about how employment would change to accommodate increased production. Only 14 percent of the firms polled indicated that the increase in production would be accomplished by hiring additional workers. Nearly 46 percent of the firms indicated that they would increase the work hours or the productivity of the current staff.
Responses to the January Manufacturing Business Outlook Survey suggest continued growth for the region’s manufacturing sector. The indexes for general activity, new orders, shipments, and employment all indicated expansion this month. Firms reported an increase in input price pressures over the past three months, and a notable share of firms reported their own prices were higher in January. Firms’ optimism about future manufacturing growth continued to improve this month.
Posted: January 19, 2017 Thursday 08:30 AM