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Philadelphia Fed November Outlook Suggest Modest Expansion
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Manufacturing growth in the region continued in November but did not match the pace of growth in the preceding month, according to firms responding to this month’s Business Outlook Survey. The survey’s broadest indicators for general activity, new orders, shipments, and employment were positive, signifying growth, but readings for each fell from October. The survey's indicators of future activity also moderated but continue to suggest general optimism about growth over the next six months.
Indicators Suggest Modest Expansion
The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, declined from 19.8 in October to 6.5 this month (see Chart). The index has now been positive for six consecutive months. The percentage of firms reporting increased activity this month (30 percent) was greater than the percentage reporting decreased activity (24 percent).
Both the current shipments and new orders indexes remained positive but fell from their readings in October. The demand for manufactured goods, as measured by the current new orders index, decreased 16 points, to 11.8. Nearly 35 percent of the firms reported a rise in new orders, compared with 41 percent last month. Shipments continued to expand, but its index fell 15 points, to 5.6.
Labor market indicators showed little improvement this month. The current employment index fell 14 points from its reading in October (which was at a two-year high), to 1.1. Nearly 13 percent of the firms reported increases in employment, which is lower than the 23 percent that reported increased employment last month. Firms, on balance, reported lower work hours, with the average workweek index falling from 8.5 to -8.6 this month.
Cost pressures were slightly more widespread this month among reporting firms: The prices paid index increased 8 points, to 29.9. But with respect to prices received for manufactured goods, 15 percent of the firms reported higher prices, and 5 percent reported lower prices. The prices received index decreased 4 points, to 10.0.
Six-Month Indicators Moderate
The survey’s future indicators have recently suggested markedly improved optimism. This month, however, the future general activity index fell 15 points, to 45.8. Still, more than 55 percent of the firms expect increases in activity over the next six months; 10 percent of the firms indicated that they expect decreases over the next six months. The indexes for future new orders and shipments also remained at relatively high levels but fell 16 points and 11 points, respectively. The future employment index was virtually unchanged at 26.9, with nearly 35 percent of the firms expecting to increase employment over the next six months.
Utilization Rate Restraining Capital Spending Plans
For this month's special questions, manufacturers were asked about current capacity utilization rates compared with the same time last year, as well as their plans for capital spending (see Special Questions). The average capacity utilization rate among the firms polled was nearly 78 percent, which was an increase from the rate indicated one year earlier (76 percent). The share of firms expecting to increase their capital spending on plant and equipment (29 percent) next year was only slightly greater than the share planning reductions (23 percent). The current utilization rate among firms expecting to increase spending on plant and equipment (84 percent) was notably higher than those expecting to decrease spending (74 percent).
Summary
According to respondents to the November Business Outlook Survey, the region’s manufacturing sector continued to grow this month, although most broad indicators were lower than in the preceding month. Firms remained optimistic about future growth, although future indicators moderated from readings in October. Firms’ employment forecasts for the next six months remained optimistic, with more than one-third expecting to add workers.
Posted: November 21, 2013 Thursday 10:00 AM