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Philadelphia Fed Outlook Reported Activity Continues to Growth in March
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Results from the March Manufacturing Business Outlook Survey suggest continued growth for the region’s manufacturing sector. Although the survey’s index for general activity moderated, the indexes for new orders and shipments improved. The survey’s future indexes, measuring expectations for the next six months, reflected continued optimism.
Current Indicators Suggest Continued Growth
The diffusion index for current general activity remained positive but declined, from 25.8 in February to 22.3 this month. Nearly 37 percent of the manufacturers reported increases in overall activity this month, while 14 percent reported decreases. The indexes for current new orders and shipments recorded notable improvements this month. The current new orders index increased 11 points, with 52 percent of the firms reporting an increase in new orders. The shipments index increased 17 points. The indexes for unfilled orders and delivery times were positive and increased 6 points and 10 points, respectively. Inventories were higher this month: The current inventories index increased from -0.9 to 16.5.
The firms continued to report increases in employment. Nearly 35 percent of the responding firms reported increases in employment, while 9 percent reported decreases this month. The current employment index edged slightly higher to 25.6, its highest reading in five months.
Firms Report Cost Pressures
Price increases for purchased inputs were reported by 44 percent of the manufacturers this month. The prices paid diffusion index fell 2 points to 42.6 but remains near last month’s reading, which was the highest since 2011 (see Chart 2). The current prices received index, reflecting the manufacturers own prices, declined 3 points to a reading of 20.7.
Firms Remain Optimistic
The diffusion index for future general activity increased from 41.2 in February to 47.9 this month (see Chart 1). Nearly 58 percent of the firms expect increases in activity over the next six months, while 10 percent expect declines. The future new orders and shipments indexes remain at high readings but fell this month: The future new orders index fell less than 1 point, while the future shipments index fell 8 points. Nearly 64 percent of the firms expect price increases for purchased inputs over the next six months, while 54 percent expect higher prices for their own manufactured goods. The future prices received index is now at its highest reading since December 1988.
Firms Report Difficulties Finding Skilled Workers in Tight Labor Market
In special questions this month, firms were asked about current conditions in the labor market (see Special Questions). The firms were asked generally about worker shortages, any perceived mismatch between skill requirements and labor supply, and how they were dealing with such skills shortages. Nearly 64 percent of the firms reported labor shortages, while a higher percentage (70 percent) indicated skills mismatches between requirements and available labor. These percentages were slightly higher than the responses the last time the questions were asked in March 2017. Nearly 48 percent of the surveyed firms also reported that they had positions that have remained vacant for more than 90 days.
The scope of the perceived labor and skills shortages were evident in responses to specific questions about hiring difficulties. Over 41 percent of the firms indicated a significant shortage in qualified applicants for some skills and positions, while 35 percent of the firms said they were seeing a tightening labor market, but it was still possible to fill positions.
Summary
Responses to the March 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 continued expansion this month. In responses to special questions, the firms reported difficulties finding skilled workers, especially those with specific machine and tool skills, and over half of the firms are raising wages to address these shortages. Looking ahead six months, the firms continued to be optimistic about the outlook for manufacturing in the region.
Posted: March 15, 2018 Thursday 08:30 AM