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Philadelphia Fed Outlook Reported Activity expanded at a slower pace in April
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Results from the April Manufacturing Business Outlook Survey suggest that regional manufacturing activity continued to expand, but at a slower pace than last month. The diffusion indexes for general activity, new orders, and shipments remained positive but fell from their readings in March. The current employment index, however, improved slightly and continues to suggest expanding employment in the manufacturing sector. The survey’s future indicators continued to reflect general optimism but retreated from their high readings in the first three months of the year.
Current Indicators Continue to Reflect Growth
The index for current manufacturing activity in the region decreased from a reading of 32.8 in March to 22.0 this month. The index has been positive for nine consecutive months and remains at a relatively high reading but has moved down the past two months (see Chart 1). Thirty-seven percent of the firms indicated increases in activity in April, while 15 percent reported decreases. The current new orders and shipments indexes remained at high readings but declined 11 points and 10 points, respectively. Both the delivery times and unfilled orders indexes were positive for the sixth consecutive month, suggesting longer delivery times and increases in unfilled orders.
Firms reported an increase in manufacturing employment and work hours this month. The percentage of firms reporting an increase in employment (27 percent) exceeded the percentage reporting a decrease (8 percent). The current employment index improved 2 points, its fifth consecutive positive reading (see Chart 2). Firms also reported an increase in work hours this month: The average workweek index was nearly unchanged at 18.9 and has registered a positive reading for six consecutive months.
Price Pressures Moderate
The survey’s diffusion indexes for prices remained positive but decreased from their readings in March. On the cost side, 36 percent of the firms reported increases in the prices paid for inputs, compared with 41 percent in March, and the prices paid index decreased 7 points to 33.7. With respect to prices received for firms’ own manufactured goods, 30 percent of the firms reported higher prices, and 13 percent reported lower prices. The prices received index decreased 4 points.
Firms Expect Growth but Optimism Lessens
Most of the survey’s six-month indicators decreased from the higher readings seen since the beginning of the year. The diffusion index for future general activity decreased from 59.5 in March to 45.4 this month (see Chart 1). Fifty-three percent of the manufacturers expect increases in activity over the next six months, while only 8 percent expect declines. The indexes for future new orders and shipments also fell, decreasing 5 points and 10 points, respectively. The future employment diffusion index, at 37.6, remained near its reading in March. Forty-six percent of the firms expect to increase employment over the next six months. Nearly 28 percent expect increases in work hours.
Capital Spending Is Expected to Increase
In special questions this month, firms were surveyed about their capital spending plans for 2017 compared with actual spending levels in 2016 (see Special Questions). Nearly 52 percent of the firms indicated that total capital spending would increase this year compared with 2016, while 17 percent indicated that spending would decrease. Expected high sales growth and the need to replace capital goods were the most cited reasons for the increase. Among the firms that indicated that capital spending would increase, 63 percent indicated that the majority of the spending would occur in the second half of the year. Among the firms that do not plan to increase capital spending, the most cited reasons were limited need to replace capital goods and low capacity utilization.
Summary
Responses to the April Manufacturing Business Outlook Survey suggest continued growth for the region’s manufacturing sector. Most of the broad indicators remained at positive readings but fell from their March readings. The survey’s employment indexes, which continued to show improvement, were an exception. Indicators reflecting firms’ expectations for the next six months remained at high levels but moderated from recent highs.
Posted: April 20, 2017 Thursday 08:30 AM