Contradictory to the Empire State Manufacturing Survey this week, but the Philly Fed Survey shows broad improvement:
Results from the Business Outlook Survey suggest that regional manufacturing activity showed improvement in November. All of the survey’s broad indicators of economic performance showed improvement from their reading in October, and firms reported an increase in employment and work hours. More firms reported increases in input prices this month, although downward pressure on the prices of firms’ manufactured goods was still evident. The survey’s broad indicators of future activity suggest that firms remain optimistic about growth over the next six months.
Indicators Suggest Improvement
The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased from a reading of 1.0 in October to 22.5 in November (see Chart). This is the highest reading in the index since last December. Indexes for new orders and shipments also improved this month, and each index increased 15 points. Indexes for both delivery times and un-filled orders changed from negative to positive this month, suggesting improvement.
Labor market conditions also showed some improvement this month, paralleling the improvement in other broad indicators. This month, firms also reported some growth in employment and a longer workweek. The percentage of firms reporting increases in employment (27 percent) was greater than the percentage of firms reporting decreases (14 percent). The index for employment was positive for the third consecutive month and increased 11 points. The average workweek index increased significantly, from -6.0 to 10.9.
Higher Input Prices Are Widespread
Price increases for inputs remain relatively widespread this month. Thirty-eight percent of the firms reported higher prices for inputs this month. The prices paid index, which had increased in the previous month, increased 3 points. On balance, firms continued to report declines in prices for their own manufactured goods: Slightly more firms reported decreases in prices (16 percent) than reported increases (14 percent). The prices received index remained negative for the sixth consecutive month, although it increased 7 points this month.
Firms Remain Optimistic About Growth
The future general activity index increased 8 points, to a reading of 49.0, its highest reading in eight months (see Chart). The future new orders and shipments indexes also remained at relatively high readings, with about half of the reporting firms expecting growth over the next six months. More firms expect to increase employment over the next six months (29 percent) than expect to decrease employment (7 percent). The future employment index edged 1 point higher to its highest reading in six months.
The survey’s index for future prices showed continued increases this month. The future prices paid and prices received indexes increased 7 points and 18 points, respectively.
For this month’s special questions, manufacturers were asked about current capacity utilization rates compared with the same time last year, as well as their plans for capital spending (see Special Questions). The average capacity utilization rate among the firms polled increased from 69 percent in November 2009 to the current rate of 72 percent. The share of firms expecting to increase their capital spending on plant and equipment (38 percent) was greater than the share planning reductions (20 percent), which represents a marked improvement over last year when the same question was asked. And as a group, the firms expecting higher spending had a larger average increase in their capacity utilization rate compared with last year.
Summary
According to respondents to the November Business Outlook Survey, regional manufacturing showed a pickup in activity. All of the broad economic indicators, including new orders, showed improvement this month. However, input price pressures were still evident this month. Firms reported higher employment this month, and the average workweek also increased compared with October. Firms continued to expect growth in their manufacturing business over the next six months, and the degree of confidence has improved notably over the past several months.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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