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Philadelphia Nonmanufacturing Activity improved in May
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The pace of regional nonmanufacturing activity improved in May, according to firms responding to this month's Nonmanufacturing Business Outlook Survey. The survey's indicators for general activity and sales rose, while the indicator for new orders fell. Employment indicators were mixed, but future activity indicators were strong, as responding firms remain highly optimistic about activity over the next six months.
Nonmanufacturing Activity Continued to Expand
The diffusion index for current activity at the firm level increased 9 points in May, to 52.3. Sixty-eight percent of the respondents reported increasing activity at their own firms this month, up from 59 percent last month. Responding firms were positive about general activity in the region; the diffusion index for current activity for the region rose more than 13 points, to 54.5. Sixty-one percent of the respondents indicated increasing activity in the region compared with 7 percent that indicated decreasing activity.
New Orders and Sales or Revenues Remained Positive
The new orders index edged down almost 9 points, to 27.3, in May. The percentage of firms reporting increases in new orders fell from 46 percent last month to 43 percent this month, and 16 percent of the firms reported decreases in new orders, compared with 10 percent that reported decreases in new orders last month. The sales/revenues index increased 5 points to 43.2. The percentage of firms reporting increases in sales or revenues was more than three times greater than the percentage of firms reporting decreases (61 percent versus 18 percent).
Employment Conditions Holding Steady
Survey results suggest steady conditions for labor market demand in May. Although the full-time employment index fell more than 9 points in May, a majority of the respondents reported no change to full-time staff levels. The part-time employment index increased 4 points, from 23.1 in April to 27.3 in May. In addition, more firms reported increases in part-time staff this month compared with last month, and fewer firms reported decreases. The workweek index decreased less than 1 point to 22.7 in May, as almost 60 percent of the firms reported no change in their average workweek.
Firms Reported Higher Prices Received
Fewer firms reported increases in input prices this month, as the prices paid index dropped more than 6 points, to 11.4, in May (see Chart 2 below). The share of firms reporting no change in input prices stands at roughly 59 percent. The prices received index rose 31 points, to 36.4. The percentage of respondents reporting increases in prices received rose from 18 percent to 41 percent, and the percentage of respondents reporting decreases fell from 13 percent to 5 percent.
Firms Increased Spending on Equipment and Software
Roughly the same share of firms reported increases in capital expenditures for equipment and software this month (33 percent in April versus 32 percent in May), and the corresponding diffusion index was little changed at 25. The index for capital expenditures on physical plant rose 13 points, to 18.2, as the share of firms reporting increased capital expenditures on physical plant rose from 18 percent in April to 25 percent in May.
Future Indicators Remain Strong
Optimism about future activity over the next six months both at individual firms and in the region remained strong and widespread. None of the respondents expect activity six months from now to decrease at their own firms, and only 2 percent expect a decline in the region. With 77 percent of the respondents expecting activity to increase at their firms, the firm-level future general activity index increased 3 points, from 74.4 in April to 77.3 in May (see Chart 1 above). The future general activity index for the region fell 3 points but remains at a high level of 79.5.
In this month's Special Questions, firms were surveyed about plans for hiring over the next year and about recent trends in compensation and wages. A majority of firms are planning to increase employment over the next year, and many firms reported increasing wages to retain and attract qualified workers.
Summary
Results from the May Nonmanufacturing Business Outlook Survey suggest continued expansion in the region among nonmanufacturing firms. Index readings for general activity at both the company and regional levels and sales and revenues improved from last month's readings. Firms remained optimistic about future growth.
Posted: May 26, 2015 Tuesday 10:00 AM