Research >> Economics

Philadelphia Fed Outlook Reported Activity continued to grow in October


Manufacturing activity in the region continued to grow, according to results from the October Manufacturing Business Outlook Survey. The survey's broad indicators remained positive, although their movements were mixed this month: The general activity and shipments indicators decreased from their readings last month, but the indicators for new orders and employment increased. The survey’s future activity indexes remained positive, suggesting continued optimism about growth for the next six months.

Changes in Current Indicators Were Mixed This Month
The diffusion index for current general activity fell 6 points this month to 5.6, after decreasing 5 points in September. The percentage of firms reporting increases (27 percent) this month narrowly exceeded the percentage reporting decreases (21 percent). Movements in the indexes for current shipments and new orders were mixed: The current new orders index increased 1 point, while the shipments index decreased 8 points. Both the unfilled orders and delivery times indexes remained positive this month, suggesting higher unfilled orders and slower delivery times.

The firms reported an expansion of manufacturing employment this month, and the current employment index increased 17 points to 32.9. Over 34 percent of the firms reported higher employment, while only 2 percent reported lower employment. The average workweek index remained positive but edged down 2 points.

Price Indexes Suggest Price Pressures Moderated
The firms continued to report overall increases in the prices paid for inputs, but the prices paid index fell 16 points to 16.8. Nearly 24 percent of the respondents reported higher input prices, down from 38 percent in September (see Chart 2). The current prices received index, reflecting the manufacturers’ own prices, decreased 4 points to a reading of 16.4.

Total Capital Spending Expected to Increase Next Year
For this month’s special questions, manufacturers were asked about current capacity utilization rates. The average capacity utilization rate reported among the responding firms was 76.9 percent, near the most recent estimate for the U.S. manufacturing sector. The firms were asked to forecast total capital spending for 2020 compared with levels in 2019, and more firms indicated that they would increase spending (39 percent) than decrease spending (20 percent). The firms were also asked about their plans for different categories of capital spending next year. For all categories of investment spending, the percentage of firms expecting to increase total capital spending was higher than the percentage expecting to decrease spending. The category with the largest share of firms increasing spending was noncomputer equipment (41 percent). The firms were also asked about the impact of trade policy on their plans. On balance, the firms indicated net negative effects: Eighteen percent of the firms indicated decreases in spending plans because of trade policy.

Firms Remain Generally Optimistic
The diffusion index for future general activity increased 13 points to 33.8, after decreasing 12 points in September. Over 43 percent of the firms expect increases in activity over the next six months, while 9 percent expect declines. The future new orders index increased 5 points, and the future shipments index increased 2 points. The future employment index fell 8 points this month, but the firms remain overall optimistic about future hiring: Thirty-two percent of the firms expect higher employment over the next six months. The firms were more optimistic about future capital spending this month: The future capital spending index increased 11 points.

Summary
Responses to the October Manufacturing Business Outlook Survey suggest growth in manufacturing activity this month. Although they remained positive, the indicators for general activity and shipments fell from their levels in September. The firms reported an improvement in both new orders and employment this month. The survey’s future indexes indicate that respondents continue to expect growth over the next six months.






Posted: October 17, 2019 Thursday 08:30 AM




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