Manufacturing activity in the region continued to expand this month, according to firms responding to the July Manufacturing Business Outlook Survey. The indicators for general activity, shipments, and new orders all declined but remain elevated. The firms continued to report increases in employment and prices. Most of the survey's future indexes tempered but continue to indicate overall optimism about growth over the next six months.

Current Indicators Remain Elevated

The diffusion index for current manufacturing activity fell from a reading of 30.7 in June to 21.9 this month (see Chart 1). Thirty-three percent of the firms reported increases in current activity this month, while only 11 percent reported decreases. The majority of firms (51 percent) reported no change in current activity. The current new orders index decreased 5 points to 17.0 in July, while the current shipments index fell 3 points to 24.6.

The firms continued to add to their payrolls this month. The current employment index edged down from a reading of 30.7 in June to 29.2 this month. Over 38 percent of the responding firms reported increases in employment, while only 9 percent of the firms reported decreases. The current workweek index fell 2 points to 18.4.

Price Indexes Suggest Increasing Prices

The firms continued to report price pressures; however, both price indexes declined this month. The prices paid index decreased 11 points to 69.7 in July after reaching a 42-year high in June (see Chart 2). Over 72 percent of the firms reported higher input prices this month (down from 82 percent last month), while only 2 percent of the firms reported lower input prices (up from 1 percent). The firms also reported overall increases in prices for their own manufactured goods: The prices received index decreased 3 points to 46.8.

Firms Remain Optimistic About Growth

The diffusion index for future general activity fell 21 points from a near 30-year high reading in June to 48.6 this month (see Chart 1). Nearly 59 percent of the firms expect increases in activity over the next six months, while 10 percent expect declines. The future new orders and shipments indexes also decreased, falling 23 points and 6 points, respectively. The future employment index rose 3 points to 56.6. Nearly 63 percent of the firms expect to increase employment over the next six months, whereas only 6 percent of the firms expect to decrease employment. The future capital spending index edged up 1 point to 41.2.

Firms Report Increases in Wages and Compensation

In special questions this month, the firms were asked generally about changes in wages and compensation over the past three months, how these recent or planned changes will affect their budgets for the rest of the year, and the components of these changes. Nearly 74 percent of the firms indicated increases in wages and compensation costs over the past three months, 26 percent reported no change, and none reported decreases.

The majority of the firms have reported adjusting their 2021 budgets for wages and compensation since the beginning of the year, with 57 percent indicating they are planning to increase wages and compensation by more than originally planned and 36 percent indicating they are planning to increase wages and compensation sooner than originally planned. Based on the median reporter, the firms expect wages to increase by 4 to 5 percent and total compensation to increase by 4 to 5 percent in 2021.

Summary

The firms' responses continued to suggest ongoing growth in the region's manufacturing sector this month. The survey's indicators for general activity, new orders, and shipments remain elevated but declined. The firms also continued to report increases in prices. The survey's future indexes indicate that the firms remain optimistic about growth over the next six months.