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Philadelphia Fed Outlook Reported Activity continued to grow in August
Manufacturing activity in the region continued to grow, according to results from the August Manufacturing Business Outlook Survey. The survey's broad indicators remained positive, although their movements were mixed this month: The general activity, shipments, and employment indicators decreased from their readings last month, but the indicator for new orders increased. The survey’s future activity indexes remained positive, suggesting continued optimism about growth for the next six months.
Current Indexes Indicate Growth
The diffusion index for current general activity fell 5 points this month to 16.8, after increasing 22 points in July (see Chart). Movements in the indexes for current shipments and new orders were mixed: The current new orders index increased 7 points, while the shipments index decreased 6 points. Both the unfilled orders and delivery times indexes remained positive this month, suggesting higher unfilled orders and slower delivery times.
The firms reported overall increases in manufacturing employment this month, but the current employment index decreased 26 points to 3.6, its lowest reading since November 2016. Nearly 25 percent of the firms reported higher employment, compared with 36 percent last month. Nearly 21 percent of the firms reported decreases in employment this month, up from 6 percent last month. The average workweek index also decreased but remained positive.
Price Indexes Suggest Modest Price Pressures
The firms continued to report increases in the prices paid for inputs. The percentage of firms reporting increases in input prices (25 percent) remained higher than the percentage reporting decreases (12 percent). The prices paid diffusion index decreased 3 points and remains well below readings over the past two and a half years. The current prices received index, reflecting the manufacturers’ own prices, increased 4 points to a reading of 13.0 but is also still well below readings of the past few years.
Firms Expect Own Prices to Match the Rate of Inflation
In this month’s special questions, the firms were asked to forecast the changes in the prices of their own products and for U.S. consumers over the next four quarters. Regarding their own prices, the firms’ median forecast was for an increase of 2.0 percent, lower than the 2.8 percent that was provided when the same question was last asked in May. The firms’ actual price change over the past year was 2.5 percent. The firms expect their employee compensation costs (wages plus benefits per employee) to rise 3.0 percent over the next four quarters, the same as the previous forecast. When asked about the rate of inflation for U.S. consumers over the next year, the firms’ median forecast was 2.0 percent, a decrease from 2.5 percent in the previous quarter. The firms’ median forecast for the long-run (10-year average) inflation rate also decreased, from 2.5 percent to 2.2 percent.
Firms Remain Generally Optimistic
The diffusion index for future general activity fell 5 points to 32.6, after increasing 17 points in July (see Chart). Over 46 percent of the firms expect increases in activity over the next six months, while 14 percent expect declines. The future new orders index decreased 2 points, while the future shipments index increased 2 points. The future employment index was essentially unchanged from the previous month, as firms remained optimistic about future hiring: Thirty-one percent of the firms expect higher employment over the next six months. The firms were less optimistic about future capital spending this month: The future capital spending index decreased 14 points to its lowest reading in five months.
Responses to the August Manufacturing Business Outlook Survey suggest growth in manufacturing activity this month. The new orders index, which reflects demand for manufactured goods, showed some improvement this month, but the indicators for general activity, shipments, and employment decreased from last month’s readings. The survey’s future indexes indicate that respondents continue to expect growth over the next six months.
Posted: August 15, 2019 Thursday 08:30 AM