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Philadelphia Fed December Outlook Suggest Year-End Pickup
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Manufacturing activity rebounded this month, according to firms responding to the December Business Outlook Survey. Following reported declines in business activity in late October and early November from the effects of Hurricane Sandy, most of the survey’s measures showed notable improvement this month. The survey’s broad indicators of future activity also showed improvement this month.
Indicators Suggest a Pickup at Year-End
The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased from a reading of ‑10.7 in November to 8.1 this month. This is the highest reading since April and is slightly above the reading before the post-storm decline in November. The demand for manufactured goods picked up: the new orders index increased 15 points, from ‑4.6 in November to 10.7 this month. The current shipments index also improved notably, rising by 25 points.
Labor market conditions at the reporting firms improved marginally this month. The current employment index, at 3.6, registered its first positive reading in six months. The percentage of firms reporting increases in employment (20 percent) narrowly exceeded the percentage reporting decreases (16 percent). Firms also indicated an increase in the average workweek compared to last month.
Prices Received Index Moves Higher
The indexes for prices received for respondents’ own manufactured goods and prices paid for purchased inputs suggest modest price pressures. The percentage of firms reporting higher prices for their own manufactured goods edged up from 16 percent to 20 percent, and the prices received index increased 9 points, to 15.4. The prices paid index was virtually unchanged at 27.8; 30 percent of the firms reported higher prices for inputs.
Six-Month Indicators Improve
The survey’s future indicators suggest improved optimism among the reporting manufacturers. The future general activity index increased from 20.0 to 30.9, its highest reading in three months. The percentage of firms expecting increases in activity over the next six months (47 percent) exceeded the percentage expecting decreases (16 percent) by a significant margin. The indexes for future new orders and shipments improved, rising 12 and 7 points, respectively. The future employment index also increased notably, from 4.2 to 14.8.
In this month’s special questions, firms were asked about their expectations for changes in various categories of input and labor costs for the coming year. Similar to responses in previous years, current responses indicate that the largest annual increase is expected to be for health benefits (7.2 percent). In contrast, other labor costs (wages and non-health-care benefits) are expected to rise only 2.1 and 2.3 percent, respectively. All other nonlabor expense categories are expected to increase in 2013: raw materials (2.6 percent), intermediate goods (2.2 percent), and energy (0.8 percent). Firms were also asked how the expected cost increases will compare to 2012 costs. In every category, the share of firms indicating that their costs would be higher in 2013 was greater than the share reporting that their costs would be lower.
The December Business Outlook Survey suggests that activity in the region’s manufacturing sector rebounded this month. Firms reported increases in overall activity, new orders, shipments, and employment compared to the declines reported in November following Hurricane Sandy. A slightly increased share of firms reported receiving higher prices for their manu-factured goods this month. The survey’s future activity indexes suggest that firms expect growth to continue over the first six months of 2013.
Posted: December 20, 2012 Thursday 10:00 AM