The respondents to this month's Nonmanufacturing Business Outlook Survey reported a slow pace of growth for current general business activity in the region. The assessments of firm-level activity were more optimistic: The February diffusion index for current general activity at the firm level was higher than the diffusion index for the region and rose slightly from its January reading. The firm-level indicators for sales and employment fell but remain positive, while the indicators for new orders held steady. The responding firms continue to be optimistic about business activity at their own firms and in the region over the next six months.

Nonmanufacturing Activity Remains Positive
The diffusion index for current activity for the region fell slightly, to 3.6. The diffusion index for current activity at the firm level stands at 25.6, rising 4 points from its January reading (see Chart 1 above). The proportion of firms reporting an increase in activity rose 4 points, to 46 percent, while the proportion reporting a decrease in activity held at 21 percent. Both indexes remain below their 2015 averages (32.0 for current activity for the region; 31.4 for current activity at the firm level).

New Orders and Sales Are Mixed
The new orders index held steady at 14.6. The share of firms reporting an increase in new orders (36 percent) rose slightly, as did the share of firms reporting a decrease (21 percent). The sales/revenues index fell 5 points, to 9.1, in February. The decline in the sales index was driven almost entirely by a rise in the share of firms reporting a decrease in their sales this month. While this index remains positive, it is far below its 2015 average of 23.6.

Employment Conditions Are Steady
The employment indicators revealed that firms held their staff levels relatively fixed from January to February. The full-time employment index fell 2 points, to 11.1; the part-time index fell slightly to 20.1; and the average workweek index rose 4 points, to 23.2. This month, 18 percent of the firms reported an increase in full-time employment (down 6 points), 30 percent reported an increase in part-time employment (down 2 points), and 35 percent reported an increase in the average workweek (up 7 points). The index for wages and benefits rose 2 points, to 34.3.

Firms Report Slightly Higher Prices
The prices paid index rose 2 points, to 18.9. The prices received index rose 6 points, to 22.4. The share of firms reporting no change in prices paid was 65 percent, while the share of firms reporting no change in prices received was 51 percent. These two series have stayed in a relatively tight range of 15 to 22 in recent months.

Spending on Equipment and Software Remains Steady
The diffusion indexes for capital spending were unchanged. The share of firms reporting increases or decreases in capital expenditures for physical plant showed little change (24 and 5 percent, respectively), as did the share of firms reporting increases or decreases in capital expenditures for equipment and software (24 percent and 7 percent, respectively).

Optimism About the Future Rose
The respondents to the survey remain optimistic about future activity over the next six months. At the individual firm level, the future activity diffusion index rose 7 points, to 30.5, in February. Fifty-three percent of the respondents foresee higher activity at their firms over the next six months. At the regional level, the future activity diffusion index was 13.7 in February, increasing more than 2 points from January. Neither one of these future indexes is near its 2015 average (54.0 for the firm and 52.3 for the region).

Special Questions About the Future Rate of Inflation
In this month’s special questions, firms were asked about changes in the prices of their own products, in compensation to their employees, and in prices their employees and U.S. consumers will pay over the next four quarters. The median forecast was for an increase of 3 percent for their own prices and compensation, which matched the median response from a similar survey conducted in November. Firms expect price increases for their employees and for U.S. consumers to be lower over the next year (2 percent). In the previous survey, the median forecast for both parameters was 3 percent. For the expected average rate of inflation for consumers over the next 10 years, the median of firms’ responses was 2.5 percent, down from 3 percent in the November survey.

Summary
Results from the February Nonmanufacturing Business Outlook Survey suggest slow to modest growth in the region among nonmanufacturing firms. The future activity indicators show optimism about growth over the next six months at both the company and regional levels.