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Philadelphia NonManufacturing Activity Suggest Continued Improvement in February
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Firms responding to February’s Nonmanufacturing Business Outlook Survey reported that regional nonmanufacturing activity continued to expand. The firm-level index of general activity rose for the third consecutive month, and the indexes for sales/revenues and full-time employment also increased in February. Both price indicators remained positive but fell slightly. The future activity index at the firm level continues to reflect optimism about growth over the next six months.
Activity Continues to Strengthen
The survey’s indicators for current activity suggest continued improvement in the nonmanufacturing sector of the regional economy. The diffusion index for current general activity at the firm level increased 3 points to 32.1, its highest reading in 10 months. Nearly 46 percent of the firms reported increases in activity, compared with 14 percent that reported decreases. The regional activity index also increased, rising 11 points to 31.0.
The indicator for sales/revenues rose 5 points to 29.3: Nearly 47 percent of the respondents reported increases in sales/revenues, while 17 percent reported decreases. The new orders index fell 5 points to 16.7. The share of firms that reported increases in new orders fell from 37 percent in January to 29 percent in February but still exceeded the share of firms that reported decreases (12 percent).
Full-Time Employment Index Rebounds
The indicator for full-time employment returned to positive territory after a near-zero reading in January. The full-time employment index rose 18 points to 18.0, slightly above its historical average of 14.1. Although most firms (60 percent) reported no change in full-time employment, the percentage of firms reporting an increase (27 percent) exceeded the percentage reporting a decrease (9 percent). The part-time employment index dropped 4 points to 12.0, and the average workweek index fell 7 points to 12.6. The wages and benefits indicator increased slightly, rising from 29.9 in January to 34.1 in February.
Firms Continue to Report Overall Price Increases
The survey’s diffusion indexes for the prices paid by firms for inputs and received by firms for their products and services remained positive but fell slightly. The prices paid index decreased 4 points to 23.7. In February, 26 percent of the respondents reported increases in input prices, compared with only 2 percent who reported decreases; 65 percent reported no change. The prices received index fell from 17.3 in January to 12.5 in February. Although most firms reported no change (64 percent), the percentage of firms that reported an increase in prices received (18 percent) continued to exceed the percentage of firms that reported a decrease (5 percent).
Forecasts of Inflation Hold Steady
In this month’s special questions, the firms were asked to forecast the changes in the prices of their own products and services and for U.S. consumers over the next four quarters (see Special Questions). Regarding their own prices, the firms’ median forecast was for an increase of 2.0 percent, the same as when the question was last asked in November 2017. The firms forecast an increase in compensation per employee of 3.0 percent over the next year, also unchanged from last time. When asked about the average rate of inflation for U.S. consumers, the median responses were unchanged at 2.0 percent for the next year and 3.0 percent for the next 10 years.
Firms Continue to Expect Future Growth
The respondents to this month’s survey remained optimistic about future activity over the next six months. The diffusion index for future activity at the firm level decreased 4 points to 58.5 (see Chart). More than 62 percent of the firms expect to see an increase in activity at their firms over the next six months, and only 4 percent expect a decline. The future regional activity index rose 3 points to 48.7, as more than 55 percent of the firms expect to see an increase in activity in the region over the next six months.
Summary
Results from this month’s Nonmanufacturing Business Outlook Survey suggest continued improvement in regional nonmanufacturing activity. The indicators for firm-level general activity and sales/revenues rose, and the firms reported overall increases in full-time employment. The respondents remain optimistic about growth over the next six months.
Posted: February 20, 2018 Tuesday 08:30 AM