Research >> Economics

Philadelphia NonManufacturing Activity Suggest Subdued Growth Pace


Regional nonmanufacturing activity in October grew at nearly the same pace as last month but remained subdued, according to firms responding to this month’s Nonmanufacturing Business Outlook Survey. The survey’s index for current general activity at the firm level indicates continued modest growth, while the indexes for new orders and sales/revenues declined somewhat. The index for full-time employment fell but remained positive. Firms reported lower increases in prices for inputs and prices received for their goods and services. Though the indicator for future general firm-level activity declined, respondents remained optimistic about growth over the next six months.

Firms Report Continued Modest Growth in Region
The diffusion index for current activity at the firm level was essentially unchanged at 16.3 in October. The general activity index has changed little since March 2016; it lies 12 points below its historical average of 28.3. Furthermore, more firms reported an increase in activity at their firm (40 percent) than reported a decrease (24 percent). The diffusion index for current general activity in the region decreased from 23.7 in September to 21.3 in October. The index is slightly below its historical average of 22.9.

New Orders and Sales Slowed Somewhat
Firms reported slower growth in new orders and sales, as indexes for both declined for the second consecutive month. The sales/revenues index fell 5 points, to 6.0. The share of firms reporting increases in sales/revenues fell from 41 percent in September to 32 percent this month. The new orders index also fell, dropping 5 points to 5.7. The share of firms reporting an increase in new orders fell, from 33 percent last month to almost 25 percent this month.

Full-time Employment Weakens but Remains Positive
After rising for two consecutive months, the index for full-time employment dropped 11 points in October, to 8.5, falling below its historical average of 14.1. More than 20 percent of the firms reported an increase in full-time employees compared with 12 percent of the firms that reported a decrease. Firms continued to report overall decreases in part-time employment, as the index for part-time employment increased only 1 point, to -3.9. The workweek index fell 9 points, to 3.9, while the wage and benefit costs index rose 10 points, to 40.5.

Firms Report Moderating Price Pressures
The prices paid index fell 15 points, to 15.0, in October (see Chart 2); it lies 5 points below its historical average of 20.2. Twenty-one percent of the firms reported an increase in input prices, and 6 percent reported a decrease, whereas last month 30 percent of the firms reported an increase in input prices, and none reported a decrease. Compared with last month, fewer firms reported increases in prices for their own goods and services, and more reported decreases. Correspondingly, the index for prices received fell 10 points, to 3.3 (see Chart 2), which is nearly 9 points lower than its historical average of 11.9.

Firms Increase Capital Spending on Equipment
The index for capital spending on equipment and software rose 7 points, to 25.9, as the share of firms reporting decreased spending in this category fell 8 points from last month’s reading. The index for physical plant spending edged down to 12.3 and currently sits slightly below its historical average of 15.1.

Optimism for Future Activity Declines Slightly
The firm-level future activity index fell 12 points, to 40.4 (see Chart 1). The share of respondents expecting activity to increase at their firms over the next six months was similar to the share expecting an increase last month; however, nearly 18 percent of the respondents expect activity to decrease, up from 8 percent last month. The regional future activity index ticked down only 2 points to 37.9. Fifty-three percent of the firms expect activity to increase in the region, while 15 percent expect activity to decrease.

Summary
Results from the Nonmanufacturing Business Outlook Survey suggest a continuation of modest growth for nonmanufacturing firms. The indicators for current general activity changed little, while the indicators for new orders, sales/revenues, and full-time employment weakened but remained positive. The prices paid and prices received indexes indicate an overall slowdown in price increases. Overall, the respondents remained optimistic about growth over the next six months.






Posted: October 25, 2016 Tuesday 08:30 AM




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