Firms responding to the June Business Outlook Survey indicated weaker business conditions this month. The survey’s indicators for general activity, new orders, shipments, and average work hours were all negative this month, suggesting overall declines in business. Input price pressures were less in evidence this month, with more firms reporting declines in input prices. And for the second consecutive month, more firms reported declines in prices for their products than reported increases. The survey’s indicators of future activity remained positive and improved slightly, suggesting that the current weakness in activity is expected to be short-lived.

Indicators Suggest Decreases in Activity
The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, fell from a reading of -5.8 in May to -16.6, its second consecutive negative reading (see Chart). Nearly 40 percent of the firms reported declines in activity this month, exceeding the 22 percent that reported increases in activity. Indexes for new orders and shipments also showed notable declines, falling 18 and 20 points, respectively. Indexes for current unfilled orders and delivery times both registered negative readings again this month, suggesting lower levels of unfilled orders and faster deliveries.

Firms’ responses suggest steady employment this month but shorter hours. The percentage of firms reporting higher employment (14 percent) edged out the percentage reporting lower employment (12 percent). The current employment index increased 3 points this month. Firms indicated fewer hours worked this month: the average workweek index decreased 14 points and posted its third consecutive negative reading.

Price Indexes Decline This Month
Indexes for prices paid and prices received both decreased and were negative this month, suggesting that price pressures have moderated notably. The prices paid index fell to -2.8, its first negative reading since July 2009. Nearly 16 percent of firms reported declines in input prices; 13 percent reported increases. Firms also reported that the prices received for their own products fell: For the second consecutive month, more firms reported a decrease in product prices (17 percent) than reported an increase (10 percent).
Despite Weakening, Outlook Remains Positive

The future general activity index improved from a reading of 15.0 in May to 19.5 in June. Although area manufacturers are not as optimistic as they were earlier in the year, the percentage of firms expecting increases in activity over the next six months (34 percent) is higher than the percentage expecting decreases (14 percent). The indexes for future new orders and shipments remained positive and also improved, increasing 12 and 17 points, respectively.

In special questions this month, firms were asked about their plans for capital spending over the next six to 12 months. The share of firms expecting to increase their capital spending on plant and equipment (32 percent) was greater than the share planning reductions (20 percent). On balance, these responses represent some improvement over the responses received when the same question was asked in November 2011. Although slightly fewer firms expect increases than in November, far fewer firms anticipate decreases in capital spending. There was a significant increase in the share of firms that expect to keep capital spending constant (from 25 percent in November to 42 percent in June).
Summary

The June Business Outlook Survey suggests that firms in the region’s manufacturing sector are experiencing declines in overall activity this month. Firms reported a notable falloff in new orders and shipments. Overall, employment remained steady, but average work hours were lower. Price pressures continued to recede this month, and more firms reported declines in prices for their own goods than reported increases. The outlook among the reporting firms, while not as optimistic as in the first quarter, suggests that firms believe that activity will rebound over the next six months.