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Philadelphia Fed July Outlook Suggest Pickup in Activity
Manufacturing firms responding to the July Business Outlook Survey indicated that regional manufacturing conditions improved this month. All of the survey’s broadest current indicators were positive, and most showed improvement from last month. The survey’s indicators of future activity also showed a notable rise, suggesting that firms expect a pickup in business over the next six months.
Indicators Suggest Pickup in Activity
The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased from 12.5 in June to 19.8, its highest reading since March 2011 (see Chart). The percentage of firms reporting increased activity this month (37 percent) was greater than the percentage reporting decreased activity (17 percent).
Other current indicators suggest continued growth this month. The shipments index increased notably, from 4.1 in June to 14.3. The demand for manufactured goods as measured by the current new orders index remained positive, although it fell back 6 points to 10.2. Firms reported a drawdown of inventories this month: The inventory index fell 15 points, from -6.6 to -21.6.
Labor market conditions showed a notable improvement this month. The current employment index, at 7.7, registered its first positive reading in four months. The percentage of firms reporting increases in employment (18 percent) exceeded the percentage reporting decreases (10 percent). Firms also indicated an increase in the average workweek compared with June.
Price Indexes Suggest Moderate Pressures
With regard to purchased inputs, 29 percent of firms reported paying higher prices for inputs, while 8 percent reported lower input prices. The prices paid index edged down 1 point. The prices received index, reflecting firms’ own manufactured goods prices, decreased 8 points, to 7.0. Over 14 percent of the firms reported higher prices for their own manufactured goods, while 7 percent reported lower prices. Nearly 76 percent reported steady prices for their own products.
Six-Month Indicators Improve
The survey’s future indicators suggest improved optimism among the reporting manufacturers. The future activity index increased 11 points from its reading in June (see Chart). Nearly 52 percent of firms are expecting increases in activity over the next six months, up from 45 percent in June. The new orders and future shipments indexes improved, increasing 17 points and 14 points, respectively. The future employment index also improved this month, increasing 9 points. Nearly 41 percent of firms expect increases in employment over the next six months, compared with 33 percent last month.
In special questions this month, firms were asked about the Affordable Care Act (ACA) and its effects on firms’ health insurance plans and workforce (see Special Questions). Over 70 percent of the surveyed firms indicated that they have not made or do not plan to make changes in their health insurance plans. Nearly 14 percent of the firms indicated they would be cutting back or dropping health insurance coverage, and 10 percent indicated that their firms were too small to be subject to the employer mandate. (All survey responses were received after the announcement earlier this month of a delay of the employer mandate until 2015.) With regard to workforce changes to date, 71 percent reported minimal or no changes related to the ACA. But 11 percent indicated there has been more outsourcing of work, and 6 percent indicated shifts from full-time to part-time workers attributable to the ACA. With regard to future workforce changes, 18 percent of firms indicated they would outsource more work over the next year, and 8 percent indicated they would substitute part-time workers for full-time workers.
The July Business Outlook Survey indicates a pickup of manufacturing activity this month, with most broad indicators, including employment, pointing to improvement over June. Firms’ responses suggest an improvement in the six-month outlook, and firms were more optimistic about adding to payrolls over the next six months.
Posted: July 18, 2013 Thursday 10:00 AM