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Philadelphia NonManufacturing Activity continued to grow in December
Responses to the December Nonmanufacturing Business Outlook Survey suggested that business activity in the region continued to grow. The index for firm-level general activity edged up, and the index for sales/revenues rose by a greater amount. The indicators for new orders and full-time employment fell but remained positive. The respondents also reported higher prices for inputs and prices received for their own goods and services. Expectations for growth over the next six months remained positive.
Activity Indicators Suggest Modest Growth
The survey’s broad indicators suggested a steady, modest pace of expansion in regional nonmanufacturing activity. The diffusion index for general activity at the firm level increased slightly, rising from 16.4 in November to 18.1 in December (see Chart 1). Nearly 40 percent of the firms reported higher activity, while 22 percent reported lower activity. The indicators for new orders and sales/revenues were mixed, however. The new orders index fell 8 points to 8.7, its lowest reading since July. In contrast, the sales/revenues index rose 11 points to 26.7. Almost 48 percent of the firms reported higher sales/revenues this month, compared with 38 percent that reported higher sales/revenues last month. Firms also perceived increases in regional economic activity: The business activity index for the region improved 6 points to 25.3.
Firms Report Expansion of Employment
The firms continued to report overall increases in full-time employment, although the pace of job growth in the region may have declined from last month. The full-time employment index remained positive but fell 14 points to 8.0 in December. The share of firms reporting increases (22 percent) exceeded the share reporting decreases (14 percent). The part-time employment index rose 2 points to 12.7, suggesting relatively steady demand for part-time, temporary, and contract workers in the region. The workweek index also rose. The wage and benefit cost index fell, however, from 43.4 in November to 33.6 in December.
Firms Report Higher Prices Received and Paid
The firms reported an improvement in prices received for their own goods and services after reporting little change last month. The prices received index rose 12 points to 11.8 in December, nearly identical to the index’s historical average of 11.6 (see Chart 2). Almost 18 percent of the firms reported higher prices for their own goods and services this month, compared with 8 percent that reported higher prices in November. The prices paid index also increased, rising 4 points to 27.5. This index has been above its historical average of 20.2 for three consecutive months. Although the largest percentage of firms (62 percent) reported steady input prices this month, 28 percent of the firms reported paying higher prices, and almost no firms reported paying lower prices.
Equipment and Software Expenditures Soften
Both indexes for capital spending fell. The index for equipment and software spending decreased 5 points to 18.4, falling below its historical average of 22.4. In December, 27 percent of the firms reported an increase in equipment and software spending, while 50 percent reported no change and 9 percent reported a decline. The index for plant spending edged down from 22.5 in November to 21.5 in December.
Expectations for the First Half of the New Year Are Positive
The respondents to this month’s survey remained optimistic about activity during the first half of 2018. The diffusion index for future activity at the individual firm level increased 3 points to 45.6 (see Chart 1). More than 56 percent of the firms anticipated higher activity over the next six months, compared with 11 percent that anticipated a decline. The future regional activity index also rose, from 31.3 in November to 39.2 in December. Nonetheless, both future indexes remained below their historical averages (49.2 for the firm-level index and 43.5 for the regional index).
Results from the December Nonmanufacturing Business Outlook Survey suggest continued expansion among nonmanufacturing firms in the region. Although the survey's current indicators for sales/revenues and new orders showed mixed signals, the general activity indexes at the firm level and for the region rose. The firms also reported growth in employment and an increase in price pressures this month. Forecasts for the next six months remain positive.
Posted: December 22, 2017 Friday 08:30 AM