Research >> Economics

Philadelphia Fed December Outlook Suggest Continued Expansion


Responses to the Business Outlook Survey this month suggest that regional manufacturing continued to improve in December. All of the broad indicators remained positive and suggest a modest expansion of activity. Increases in input prices were more widespread this month, and there was an uptick in the number of firms reporting increased prices for their own goods. The broadest indicator of future activity reflected a trend of increased optimism about growth over the next six months.

Indicators Suggest Continued Expansion
The diffusion index of current activity, the survey’s broadest measure of manufacturing conditions, remained positive for the third consecutive month and increased from 3.6 in November to 10.3. The percentage of firms reporting increases in activity (25 percent) exceeded the percentage reporting decreases (15 percent). The index for current new orders showed a similar improvement, increasing 8 points. The shipments index, at 6.7, was mostly flat. Twice as many firms reported declines in inventories (30 percent) as reported increases (15 percent) and the current inventory index fell 22 points to -14.9.

Labor market conditions continue to show overall improvement, but indexes edged down this month. Twenty percent of the firms reported an increase in employment; 10 percent reported a decrease. The current employment index remained positive at 10.7, only 1 point lower than in November. The average workweek index also remained positive but fell nearly 9 points.

Prices for Manufactured Goods Edge Higher
Increasing costs were more widespread this month compared to last month. The percentage of firms reporting higher input costs increased from 31 percent in November to 41 percent this month. The prices paid diffusion index increased 11 points.

The percentage of firms reporting increases in prices for their manufactured goods (22 percent) was higher than that reporting decreases (10 percent). The prices received diffusion index increased 9 points, to its highest reading in seven months.

Six-Month Indicators Continue to Improve
Indicators for future activity continued to improve this month. The broadest indicator of future activity increased 2 points; it has now increased for four consecutive months and is at its highest reading in nine months. The index for future new orders also improved, increasing 8 points. Although employment forecasts remain generally positive, the future employment index fell 13 points. The percentage of firms expecting to increase employment over the next six months (24 percent) is significantly higher than the percentage expecting to decrease employment (11 percent).

In this month’s special questions, firms were asked about their expectations for changes in various categories of input and labor costs for the coming year (see Special Questions). Similar to responses in previous years, current responses indicate that the largest annual increase is expected to be for health benefits (7.3 percent). In contrast, other labor costs (wages and non-health-care costs) are expected to rise only 2.1 and 2.5 percent, respectively. All other nonlabor expense categories are expected to increase in 2012: energy (1.8 percent), raw materials (3.3 percent), and intermediate goods (2.4 percent). Firms were also asked how the expected cost increases will compare to 2011 costs. In every category, the percentage of firms indicating that their costs would be higher in 2012 was greater than the percentage reporting that their costs would be lower.

Summary
According to respondents to the December Business Outlook Survey, the region’s manufacturing sector is showing continued improvement at year-end. Indicators for general activity, new orders, shipments, and employment all suggest growth this month. Firms’ outlook for future manufacturing growth, as measured by the survey’s six-month indicators, continued to improve this month.




Posted: December 15, 2011 Thursday 10:00 AM




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