Research >> Economics
Philadelphia NonManufacturing Activity Suggest Slightly Slower Growth Pace
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Regional nonmanufacturing activity in September grew at a slightly slower pace, according to firms responding to this month’s Nonmanufacturing Business Outlook Survey. The survey’s indexes for current general activity at the firm level and in the region remained positive but suggest a continuation of a slight softening in the region. In addition, firms reported slower growth in sales and new orders. The index for full-time employment rose, however. Firms reported stronger increases in prices for inputs than in prices received for their goods and services. Despite declines in the survey’s current activity indicators, the respondents expressed greater optimism about activity over the next six months.
Firms Report Lower Growth
The diffusion index for current activity at the firm level fell from 19.5 in August to 16.7 in September. This index is lower than any value recorded over the prior 12 months and is also below its historical average (28.5), which suggests a slowdown in growth for nonmanufacturing firms in the region. Nonetheless, more firms reported an increase in activity at their firm (41 percent) than reported a decrease (25 percent). In the prior month, however, a larger share (47 percent) reported an increase in activity at their firm, while the share who reported a decrease was little changed. The diffusion index for current general activity in the region decreased 1 point, to 23.7. This index is close to its historical average (23.0).
New Orders and Sales Weaken
Firms reported a decline in the growth of new orders and sales this month. The new orders index fell 4 points, to 10.6. While the share of firms reporting increases in new orders (33 percent) exceeded the share of firms reporting decreases (23 percent), the share of firms reporting an increase was higher last month (38 percent). The sales/revenues index also fell, dropping 11 points to 11.1. The share of firms reporting a decline in sales grew, from 22 percent last month to almost 30 percent this month.
Full-time Employment Improves
In September, the index for full-time employment rose 9 points, to 19.3. This is only the second month in 2016 that this index has been above its historical average of 14.2. Conditions for part-time employment deteriorated, however, as the index for part-time employment decreased 24 points, to -5.0. The workweek index held steady at 12.5, and the wages and benefits index fell 1 point, to 30.5.
Firms Report Increases in Prices Paid
The prices paid index rose 19 points, to 29.9, in September. Thirty percent of the firms reported an increase in input prices, and none reported a decrease. Fewer firms reported increases in prices for their own goods and services compared with last month. Nonetheless, the index for prices received rose 3 points, to 13.2, due to a drop in the share who reported decreases in prices for their own goods and services.
Firms Increase Capital Spending
The index for capital spending on physical plant rose 4 points, to 13.1, as the share of firms reporting increased spending in this category rose 5 points from last month’s reading. The index for equipment and software spending fell 10 points, to 19.0. The share of the respondents who reported increases in spending on software and equipment remains relatively high at 30 percent.
Reasons for Capital Spending
In this month’s special questions, firms were asked about spending plans related to achieving company growth. Modernization of business processes (76 percent) was the most frequently cited goal, followed by expansion of facilities (36 percent). Fewer firms, but still notable percentages, indicated other goals to achieve growth: launching of new units (22 percent), joint ventures (22 percent), and acquisition of another company (12 percent).
Optimism for Future Activity Remained High
Respondents continue to be optimistic about future activity. The firm-level future activity index rose 9 points, to 52.7 (see Chart 1). Nearly 61 percent of the respondents expect activity to increase at their firms, while 8 percent expect activity to decrease. The regional future activity index moved up 5 points, to 39.8. Forty-nine percent of the firms expect activity to increase in the region, while 9 percent expect activity to decrease in the region.
Summary
Results from the Nonmanufacturing Business Outlook Survey suggest a slight weakening in current conditions. The indicators for general activity at the firm level were more pessimistic than indicators for general activity in the region. While full-time employment improved, other employment indicators weakened. The index for prices paid rose more than the index for prices received. The respondents were optimistic about growth over the next six months.
Posted: September 20, 2016 Tuesday 08:30 AM