December 2005
Business Outlook Survey

Activity in the region's manufacturing sector continues to expand, according to
firms surveyed for this month's Business Outlook Survey. The general activity
index improved modestly this month; indicators for new orders, shipments, and
employment were down from their readings last month, although they remain
positive. Firms continued to report rising prices for inputs, and more than
one-third reported receiving higher prices for their own manufactured goods. The
region's manufacturing executives were somewhat more optimistic about future
growth this month than in November.

Manufacturing Expansion Continues

The survey's broadest measure of manufacturing conditions, the diffusion index
of current activity, rose slightly, from 11.5 in November to 12.6 this month
(see Chart). Thirty-five percent of the firms reported increases in activity (up
12 points from November); 23 percent reported decreases. The new orders index
decreased five points but remained positive for the third consecutive month. The
shipments index also remained positive but declined 14 points.

Continued expansion in manufacturing is evident in replies to questions about
employment and hours worked. The percentage of firms reporting increased
employment (19 percent) was nearly the same as in November. The employment
index, however, declined 10 points because the percentage of firms reporting
lower employment rose from 1 percent to 10 percent. On balance, the workweek was
higher this month: More firms reported a longer workweek than reported a shorter
one (20 percent versus 15 percent).

Input Price Pressures Moderate Slightly

Firms reported higher production costs again this month, although price
pressures moderated slightly: 50 percent reported higher input prices; however,
this was down from 58 percent in November and 68 percent in October. The prices
paid index remains at a high level but fell eight points.

Higher prices for final manufactured goods remained relatively widespread again
this month: 35 percent of the firms reported higher prices for their goods, the
same as in the previous month. The prices received index, at 30.5, was down two
points from November.

Six-Month Forecasts Improve

Expectations for future manufacturing growth showed improvement again this
month. The index for future activity increased from 29.2 in November to 39.0
this month, the highest reading in 12 months (see Chart). Other broad indicators
of future growth showed similar increases: The future new orders index increased
six points and the future shipments index increased five points. The future
employment index rose notably this month (13 points): About 7 percent of firms
expect to decrease payrolls but nearly five times as many anticipate increasing
them (32 percent).

In a special question this month, firms were asked about planned capital
spending for the upcoming year (see Special Question). For all of the categories
of capital spending, more firms predicted higher expenditures next year than
predicted lower. The largest percentage of the firms indicated increased
spending for noncomputer equipment (38 percent) and for energy-saving
investments (35 percent).

Summary

The survey continues to reflect growth in the region's manufacturing sector.
Indicators for shipments, new orders, and employment remained positive but
declined somewhat this month. Firms continued to report higher prices for inputs
and manufactured goods, although a slight moderation in cost pressures was
evident. Firms expect continued growth in their business over the next six
months, and almost one-third said they will increase employment.

_________

SPECIAL NOTE: The survey's annual historical revisions, which incorporate
new seasonal adjustment factors, will be released on Thursday, January 12,
2006, at noon E.T. The information will be made available at:
http://www.PhiladelphiaFed.org/research-and-data/regional-economy/business-outlook-survey/boshistory.html

SPECIAL QUESTION (December 2005)

Do you expect the following 2006 capital expenditure categories to be higher
than, lower than, or the same as the current year:

%Higher % Same % Lower % No Response % Total%

Non-computer equipment 37.8% 31.1% 25.7% 5.4% 100.0
Energy-saving investments 35.1% 47.3% 9.5% 8.1% 100.0
Software 29.7% 41.9% 21.6% 6.8% 100.0
Computers and related
hardware 28.4% 51.3% 14.9% 5.4% 100.0
Structures 24.3% 47.3% 21.6% 6.8% 100.0

December 2005

Notes: (1) Items may not add to 100 percent because of omission by respondents.
(2) All data are seasonally adjusted.
(3) Diffusion indexes represent the percentage of respondents indicating
an increase minus the percentage indicating a decrease.
(4) Survey results reflect data received through December 13, 2005.

November 2005

Activity in the region's manufacturing sector continues to expand, according to
firms surveyed for this month's Business Outlook Survey. Although indicators for
general activity and new orders fell from their October readings, they remain
near their average levels this year. Firms continued to report rising prices for
inputs, and more than one-third reported receiving higher prices for their own
manufactured goods. The region's manufacturing executives were somewhat more
optimistic about future growth this month than in October.

Current Activity Indexes Suggest Continued Growth

The survey's broadest measure of manufacturing conditions, the diffusion index
of current activity, decreased from 17.3 in October to 11.5 this month (see
Chart). Twenty-three percent of the firms reported increases in activity (down
six points from October); 12 percent reported decreases. The new orders index
also had a six-point decline this month. Nearly 32 percent of the firms,
however, reported increases in new orders. The shipments index rose four points.
On balance, unfilled orders declined slightly, but delivery times continued to
lengthen.

Continued expansion in manufacturing is evident in replies to questions about
employment and hours worked. The percentage of firms reporting increased
employment (20 percent) was higher than that of firms reporting lower employment
(1 percent). The current employment index rose two points. On balance, the
workweek was higher this month: more firms reported a longer workweek (18
percent) than a shorter one (10 percent).

Higher Prices Reported

Firms reported higher production costs again this month: 58 percent reported
higher input prices; however, this was down from 68 percent in October. The
prices paid index remains at a high level but fell 11 points.

Higher prices for final manufactured goods were also widespread again this
month: 35 percent of the firms reported higher prices for their goods, up
slightly from 33 percent last month. The prices received index, at 32.5, was
virtually unchanged from October. Expectations regarding future price increases
remain elevated: 59 percent of the firms expect input price increases over the
next six months; 45 percent expect increases in prices of their own manufactured
goods.

Six-Month Forecasts Improve

Expectations for future manufacturing growth showed improvement this month. The
index for future activity increased from 22.0 in October to 29.2 this month, the
highest reading in three months (see Chart). Other broad indicators of future
growth showed similar increases: the future new orders index increased nine
points and the future shipments index increased seven points. The future
employment index increased slightly from October: more than twice as many firms
anticipate increasing payrolls (25 percent) as expect to decrease them (12
percent). The future workweek index rose eight points.

In a special question this month, firms were asked about their expectations of
percentage changes in costs by category for 2006 (see Special Question). The
greatest increases in expected costs are for energy: 38 percent of the firms
expect energy cost increases of more than 10 percent next year; 37 percent
expect increases of between 5 and 10 percent. Seventy-nine percent of the firms
expect raw material costs to increase next year; half expect a rise of more than
5 percent. Eighty-seven percent expect wages to increase less than 5 percent.
Nearly 80 percent expect health benefit costs to rise more than 5 percent; 33
percent expect a rise of more than 10 percent.

Summary

Indicators continue to reflect growth in the manufacturing sector. Indexes for
general activity and new orders remained positive but declined slightly this
month. Indexes for shipments and number of employees increased from their
readings in October. Responses from this month's survey suggest that input price
pressures continued this month, and over one-third of the firms reported higher
prices for their final manufactured goods. Firms expect continued growth in
their businesses over the next six months, with one-fourth indicating that they
will increase employment.

Special Question (November 2005)

What percentage change in costs do you expect for the following
categories in 2006?

Energy Other Raw Intermediate Wages Health Non-
Materials Goods Benefits Health
Benefits
Increase more than 10% 38.1 8.3 4.9 0.0 32.9 2.4
Increase 5-10% 36.9 41.7 23.5 1.2 47.1 16.6
Increase less than 5% 7.1 28.6 42.0 87.0 12.9 39.3
Stay at current levels 5.9 14.2 27.2 9.4 3.5 39.3
Decline less than 5% 3.6 3.6 1.2 1.2 2.4 2.4
Decline 5-10% 4.8 2.4 1.2 1.2 0.0 0.0
Decline more than 10% 3.6 1.2 0.0 0.0 1.2 0.0
Total
100.0 100.0 100.0 100.0 100.0 100.0

November 2005
Summary of Returns

November vs. October | Six Months from now vs. November
|
|
Prev. | Prev.
Diff. Inc. No ch. Dec. Diff. | Diff. Inc. No ch. Dec. Diff.
Index Index | Index Index
|
General Busines 17.3 23.3 64.9 11.8 11.5 | 22.0 39.7 43.8 10.6 29.2
Conditions | |
New Orders 18.6 31.9 48.7 19.2 12.7 | 29.5 51.1 29.5 13.0 38.1
Shipments 19.5 36.1 49.7 12.8 23.4 | 26.8 47.1 35.3 13.5 33.5
Unfilled Orders 0.8 19.6 51.8 27.4 -7.8 | 1.7 24.1 55.7 13.5 10.6
Delivery Times 9.6 20.9 67.2 11.9 9.0 | 5.0 16.2 68.5 10.7 5.5
Inventories -4.5 15.4 67.8 15.6 -0.1 | -2.5 19.9 51.3 21.9 -2.1
Prices Paid 67.6 58.1 39.4 1.2 56.8 | 61.0 59.4 33.5 1.9 57.6
Prices Received 32.6 34.8 63.0 2.3 32.5 | 49.3 45.2 49.6 2.6 42.6
Number of Emp. 17.0 20.3 78.6 1.1 19.1 | 11.3 24.7 57.1 12.3 12.3
Avg. Emp. Wrkwk 11.0 18.2 70.3 9.5 8.7 | 4.0 23.2 59.4 11.3 11.8
Capital Ex. -- -- -- -- -- | 18.1 27.9 49.1 3.7 24.2

October 2005

The pace of activity in the region's manufacturing sector picked up in October,
according to firms polled for this month's survey. Indicators for general
activity, shipments, new orders, and employment all improved from their readings
in September. Firms continued to report a rise in prices for inputs, and more
firms reported receiving higher prices for their own manufactured goods.
Expectations for future growth recovered from the low readings recorded last
month just after Hurricane Katrina hit the Gulf Coast.

Current Indicators Rebound

The survey's broadest measure of manufacturing conditions, the diffusion index
of current activity, increased from 2.2 in September to 17.3 this month. The
15-point rise returns the index close to its level in August (see Chart). All of
the other broad indicators improved substantially this month, alleviating
concern about a pause in growth. The new orders index increased from a 29-month
low of -0.5 in September, to 18.6 this month. The current shipments index rose
six points. Both the unfilled orders and delivery time indexes were positive,
following negative readings in September. On balance, more firms said
inventories were lower this month than said they were higher.

The improvement in manufacturing activity is also evident in replies to
questions about employment and hours worked. The current employment index rose
14 points, and the percentage of firms reporting increases in employment edged
higher. The workweek index rebounded from a reading of 1.2 in September to 11.1
this month.

Higher Prices Reported

Firms continued to report higher production costs this month. The current prices
paid index rose 15 points, following an increase of 27 points in September, and
is now at its highest reading since November 1980. Sixty-eight percent of the
manufacturers reported higher prices for inputs, up from 57 percent last month.
No firms reported declines in input prices.

Higher prices for final manufactured goods were also more widespread this month,
suggesting that higher costs have been passed on to customers. Thirty-three
percent of the firms reported higher prices for their goods, compared to 22
percent last month. The prices received index rose 24 points to its highest
reading in 12 months. Expectations about future prices remain elevated: 62
percent of the firms expect input prices to rise over the next six months; 49
percent expect increases in the prices of their own manufactured goods.

Six-Month Indicators Also Rebound

Overall expectations for the next six months rebounded in October, after falling
sharply in September. The future general activity index rose from 7.0 to 22.0.
The 15-point increase recovered some of the 26-point drop in September (see
Chart). Other broad future indicators showed similar improvement: the future new
orders index rose 17 points, and the future shipments index was up 16 points.
Firms' outlook for future employment held relatively steady this month, although
businesses were more optimistic about expanding the work hours of existing
employees. The future employment index, at 11.3, was virtually unchanged from
September. Nineteen percent of the firms expect increases in employment over the
next six months; 8 percent expect decreases. On balance, firms expect the
average workweek to improve: the future workweek index increased eight points.

In a special question this month, firms were asked about the impact of the Gulf
Coast hurricanes on their manufacturing business (see Special Questions). Half
the firms said they had not experienced a change in demand for their products or
other related problems, and half said there had been some effect. Among those
that reported some effect, the percentage citing an increase in demand (20
percent) was slightly higher than that citing a decrease (16 percent). A
relatively small percentage of firms, however, indicated that the change in
demand was significant (only 1.2 percent experienced a significant increase in
demand; 2.3 percent experienced a significant decrease in demand). The most
commonly cited post-hurricane effects were supply-related difficulties:
transportation problems were cited by 28 percent of all firms; problems
obtaining raw materials, by 21 percent; and problems obtaining energy products,
by 13 percent.

Summary

Indicators of current activity point to an expansion of the region's
manufacturing sectors following little to no growth in the previous month.
Indicators for general activity, new orders, shipments, and employment all
increased from their September readings. Firms continue to report higher prices
for inputs, and more firms reported higher prices for their final manufactured
goods. A sizable proportion of the region's manufacturing firms indicated that
they were affected by the Gulf Coast disasters, including some disruptions in
transportation and deliveries of materials. Expectations for growth over the
next six months recovered from steep declines in September but remain somewhat
below average levels for the year.

Special Questions (October 2005)

1. Have you experienced any change in demand or problems as a result
of the Gulf Coast hurricanes?

Yes 50.0%
No 50.0%

Total 100.0%

If yes, check any that apply:

%
% % % % of
slight moderate significant total respondents

Increase in demand 12.8 5.8 1.2 19.8%
Decrease in demand 8.1 5.8 2.3 16.2%
Other Effects:
Transportation problems 2.3 15.1 10.4 27.8%
Problems obtaining other
materials 3.5 11.6 5.8 20.9%
Problems obtaining energy
products 3.5 4.7 4.7 12.9%

October 2005
Summary of Returns

Business Outlook Survey
September 2005

The pace of activity in the region's manufacturing sector slowed in September,
according to firms polled for this month's survey. Indicators for general
activity and new orders fell substantially from their readings in August and
suggest little to no growth this month. Shipments increased but at a slower
pace, manufacturing employment and work hours were virtually steady, and firms
again reported an increase in industrial prices. The region's manufacturing
executives were significantly less optimistic about future activity than in
August.

Current Indicators Are Weaker
The survey's broadest measure of manufacturing conditions, the diffusion index
of current activity, fell from 17.5 to 2.2, the lowest reading in three months
(see Chart). Twenty-four percent of the firms reported increases in activity
this month (compared to 36 percent last month); 22 percent reported a decline.
Other broad indicators also declined. The new orders index fell 20 points,
recording its first negative reading since April 2003. The shipments index fell
five points but remained positive at 13.2. Indicators for unfilled orders and
delivery times were negative and corroborate evidence of weakness this month:
the unfilled orders index fell 18 points, and the delivery times index fell
three points.

The moderation in manufacturing activity is evident in replies to questions
about employment and hours worked. The percentage of firms reporting increased
employment (15 percent) was only slightly higher than that of firms reporting
lower employment (13 percent). The current employment index, which fell four
points, is now at its lowest mark since September 2003. On balance, the workweek
was mostly steady this month.

Price Indexes Move Higher
Firms reported higher production costs this month. Fifty-seven percent of the
firms reported higher input prices, compared to 33 percent in August. The prices
paid index rose 27 points to its highest reading since January.

Higher prices for final manufactured goods were also more widespread this month
than last. Twenty-two percent of the firms reported higher prices for their
goods, compared to 12 percent last month, and the prices received index rose six
points. Expectations about future prices were considerably higher this month.
The future prices paid index rose 26 points, and the future prices received
index rose six points.

Six-Month Indicators Fall Significantly
Overall expectations for the next six months fell sharply in September. The
future general activity index fell from 33.4 in August to 7.0 this month, the
lowest reading since January 2001 (see Chart). Other broad future indicators
showed similar declines: the future shipments index fell 23 points, and the
future new orders index fell 18 points. On balance, firms expect unfilled orders
to decline modestly over the next six months and delivery times to fall
somewhat. Inventories are expected to remain flat.

Firms' outlook for future employment growth held relatively steady this month,
although firms are less optimistic about expanding the work hours of existing
employees. The future employment index declined only slightly from its reading
in August: 25 percent of the firms expect employment to rise over the next six
months; 14 percent expect it to fall. On balance, firms expect the average
workweek to decline: the future workweek index fell 17 points and was negative
for the second time in three months.

In a special question this month, firms were asked about the impact of recent
higher energy prices on current new orders and production as well as on planned
production over the next six months (see Special Question). The largest share of
firms indicated that higher energy prices have so far had only a slight negative
effect on new orders (50 percent) and production (58 percent). Nearly 30 percent
of the firms said that higher energy prices had a moderate negative effect on
new orders; 6 percent reported a significant negative effect. Twenty-three
percent said higher energy prices had a moderate negative effect on current
production; 11 percent reported a significant negative effect. With regard to
planned production over the next six months, 24 percent said higher energy
prices would have a moderate negative effect; 18 percent said they would have a
significant negative effect.

Summary
Overall manufacturing conditions in the region are mostly steady, and indicators
for general activity, new orders, and employment suggest little or no growth
this month. According to responses from this month's survey, input price
pressures were greater this month, and more firms reported higher prices for
final manufactured goods. Most broad indicators fell notably in September, and a
sizable share of firms indicated that energy costs will adversely affect
production over the next six months.

Special Question (September 2005)

What has been the effect of recent higher energy prices on your firm's current
new orders and production, and on planned production for the next six months?

Current Current Planned Production for
New Orders Production the next six months

Slightly negative effect 50.0% 58.1% 49.2%
Moderately negative effect 29.7% 22.6% 23.8%
Significantly negative effect 6.2% 11.3% 17.5%

Positive effect 14.1% 8.0% 9.5%
Total 100.0% 100.0% 100.0%

Summary of Returns
September 2005

August 2005

Activity in the region's manufacturing sector continued to expand in August, at
a somewhat faster pace than in July. Indicators for general activity, new
orders, shipments, and employment remained positive and increased from their
readings last month. Firms continued to report a rise in prices for inputs, but
prices for their own manufactured goods held relatively steady. Also this month,
the region's manufacturing executives were significantly more optimistic about
future activity than they were in July.

Most Current Indicators Rise

The survey's broadest measure of manufacturing conditions, the diffusion index
of current activity, increased from 9.6 in July to 17.5 in August. The eight-
point gain brings the index to its highest reading since April (see Chart).
Thirty-six percent of the firms reported increases in activity this month,
compared to 28 percent last month. Other broad indicators showed improvement.
The new orders index increased nearly 15 points, to its highest reading since
April. The current shipments index increased five points. Unfilled orders rose
this month: the unfilled orders index increased 16 points, its first positive
reading in eight months. The delivery time and inventory indexes also increased.

The improvement in manufacturing activity was accompanied by a slight increase
in the employment index this month. The employment index increased three points,
to just above its average over the previous three months. The percentage of
firms reporting increased employment (21 percent) was higher than that of firms
reporting lower employment (15 percent) for the 23rd consecutive month. On
balance, the workweek was mostly steady this month.

Manufacturers' Prices Nearly Steady Despite Higher Costs

Despite continued cost pressures, prices for firms' own manufactured goods were
essentially steady this month. Only slightly more firms reported higher prices
for their own manufactured goods (12 percent) than reported lower prices (9
percent), and 78 percent of the firms indicated steady prices. The current
prices received index fell from 12.0 to 3.0, its lowest reading since August
2003.

Despite the moderation in the prices received for their own manufactured goods,
firms reported higher production costs. Thirty-three percent of firms reported
higher input costs this month. The prices paid diffusion index, which decreased
one point, remains near the 21-month low it reached in June.

In a special question this month, firms were asked about their expectations of
price increases for selected inputs over the remainder of this year. Seventy-six
percent of the manufacturers expect further increases in energy costs, 65
percent expect price increases for raw materials, and 52 percent expect
increases for intermediate goods. Firms expect energy prices to increase an
average of 5.4 percent over the remainder of the year, raw materials 2.8
percent, and intermediate goods 2 percent.

Six-Month Forecasts More Optimistic

Overall expectations for the next six months remain optimistic and improved
markedly from July. The index for future activity increased from 15.3 in July to
33.4, its highest reading since December (see Chart). Other future indicators
also increased this month: the future shipments index rose 10 points, and the
future new orders index rose eight points. Manufacturing executives were
slightly more optimistic about adding to their payrolls over the next six
months: the future employment index increased seven points. Nearly 29 percent of
the firms indicated plans to increase employment over the next six months; 16
percent plan to decrease employment. Firms, on balance, expect increases in the
average workweek; the future workweek index rose 15 points.

Summary

Indicators continue to point to an expansion of the region's manufacturing
sector, as most indicators of current performance increased from their July
readings. Firms continued to report higher prices for inputs, but prices for
their own manufactured goods were nearly steady this month. Firms expect
continued price increases for energy, raw materials, and intermediate goods over
the next six months. Future indicators for general activity and employment, up
notably this month, point to expectations among the region's manufacturers of
continued growth in their business over the next six months.

Special Question August 2005

For the remainder of 2005, what change in prices do you anticipate for energy,
raw materials, and intermediate goods?

Percentage of firms expecting: Energy % Raw Materials % Intermediate Goods %
Increase 75.6 65.1 51.9
Decrease 1.2 7.2 3.7
No Change 23.2 27.7 44.4
Total 100 100 100
Average Change Expected* 5.4 2.8 2.0

*Average change expected for those firms that provided a magnitude of change.

Summary of Returns
August 2005

Business Outlook Survey

July 2005

Activity in the region's manufacturing sector increased modestly, according
to firms surveyed for this month's Business Outlook Survey. Indicators for general
activity, shipments, and new orders increased from their readings in June.
Firms continue to report a rise in prices for inputs and for their own finished
goods; both of these price indexes increased slightly this month. Despite the
improvement in current conditions, respondents were less optimistic about
future conditions this month than in June. However, they still expect
manufacturing growth to continue.

Current Indicators Bounce Back

The survey's broadest measure of manufacturing conditions, the diffusion index
of current activity, increased from -2.2 in June to 9.6 this month. The increase
of almost 12 points returns the index to positive territory after being negative
for one month (see Chart 1). The portion of firms reporting increases in
activity exceeded that of firms reporting decreases (28 percent versus 19
percent). Other broad indexes showed modest improvement. The new orders index
edged up three points to a reading of 5.0, suggesting only slight growth this
month. The current shipments index increased nearly six points, to 12.4. The
current unfilled orders and delivery times indexes improved but were negative
for the second consecutive month. Firms reported overall declines in inventories
this month, as the current inventories index remained negative, falling 11
points. The recent moderation in manufacturing growth is evident in replies to
questions about employment and hours worked. The percentage of firms reporting
increased employment was higher than that of firms reporting lower employment
for the 22nd consecutive month. But the current employment index fell to its
lowest point since November 2003. While remaining at a relatively low level, the
current workweek index increased two points this month.

Price Pressures Continue to Moderate

Firms continue to report higher production costs. Thirty-five percent of the
manufacturers reported higher prices for inputs; only 9 percent reported lower
prices. The diffusion index for prices paid rose for the first time in three
months, though only a modest three points above June's reading, which was the
index's lowest point in 21 months (see Chart 2).

More firms continue to report higher prices than report lower prices for their
own manufactured goods (21 percent versus 9 percent). The diffusion index for
prices received increased from 8.1 in June to 12 this month, but this is the
second-lowest reading in 19 months (see Chart 2).

Six-Month Forecasts Less Optimistic

Despite the improvement in current activity, expectations for future growth
showed some deterioration this month. The index for future activity fell from
30.6 in June to 15.3 this month, its lowest reading since February 2001 (see
Chart 1). Despite the decline in the index, the percentage of firms expecting
increases in activity over the next six months (40 percent) still exceeds the
percentage expecting decreases (25 percent). Other future indicators declined
this month as well: the future new orders index fell 12 points, and the future
shipments index fell 14 points. Little change is expected in unfilled orders and
delivery times over the next six months (these indexes remain near zero). More
firms expect inventories to decline (34 percent) than expect them to increase
(14 percent). The future inventory index remained negative and fell 11 points.
The future employment index also declined notably, from 21.4 in June to 5.5 this
month, its lowest reading since August 2002. The percentage of firms expecting
to increase employment over the next six months (26 percent) is slightly larger
than the percentage expecting to decrease employment (20 percent). The future
workweek index declined 18 points, falling below zero for the first time since
March 2001.

Summary

Indicators of current activity point to an expansion of the region's
manufacturing sector. Indexes for general activity, shipments, and new orders
suggest a moderate pace of growth. Firms continue to report higher prices for
inputs and for their own manufactured goods, but the survey's price indexes
remain lower than earlier this year. Although manufacturers are generally
optimistic about growth in their sector, expectations for the next six months
fell dramatically in July.

Summary of returns

July 2005

Business Outlook Survey

June 2005

Activity in the region's manufacturing sector weakened in June, according to
firms surveyed for this month's Business Outlook Survey. This represents a
decline from the moderate performance in May. Indexes for general activity, new
orders, and shipments fell from their readings in May, and most indicators have
weakened over the past two months. Firms continued to report a rise in prices
for inputs and for their finished goods, although the survey's price indexes
fell again this month. Overall employment was reported slightly higher, and
average work hours also improved. Despite the weakness in current conditions,
expectations for growth over the next six months improved somewhat this month.

Conditions Weaken This Month

The diffusion index of current activity, the broadest measure of manufacturing
conditions, fell from 7.3 in May to -2.2 this month. This is the index's first
negative reading in 25 months (see Chart). The portion of firms reporting
decreases in activity (21 percent) was slightly greater than the portion
reporting increases (19 percent). The current new orders index fell 13 points
this month, and the shipments index fell eight points. Both indexes remained
positive but suggest little or no growth in June. Indicators for unfilled orders
and delivery times were negative and provide corroborating evidence of weakness:
the unfilled orders index fell 19 points, and the delivery times index fell 14
points.

Despite the weakening in broad indicators, the survey's employment index was
slightly higher this month. The current employment index rose from 5.4 in May
(the lowest reading since November 2004) to 7.1 this month. More firms reported
higher employment than lower (18 percent versus 11 percent); 71 percent reported
no change.

Price Pressures Moderate Again

Although firms continue to report higher production costs, the index for input
prices fell notably this month. The diffusion index for prices paid declined
from 30.9 in May to 23.5. The index has generally trended down since its high
reading of 66.1 in January and is now at its lowest point in 21 months.

Firms continue to report higher prices for their own manufactured goods, though
price increases were less widespread this month (17 percent reported higher
prices; 9 percent reported lower prices). The diffusion index for prices
received fell eight points and is now at its lowest reading in 18 months.

Outlook Remains Favorable

Despite the weakness in current activity this month, expectations for future
growth improved. The index for future activity increased from 22.3 in May to
30.6, its highest reading in six months (see Chart). The portion of firms
anticipating improvement in business conditions over the next six months (47
percent) continues to exceed the portion expecting deterioration (16 percent) by
a significant margin. Other future indicators improved. The future new orders
index increased 19 points, and the future shipments index rose 16 points. The
future employment index also increased notably, from 7.0 in May to 21.4 this
month. The future workweek index paralleled the increase in the future
employment index. The future capital spending index edged up four points.

In special questions this month, firms were asked about their expectations for
spending on new plant and equipment over the next six to 12 months, relative to
actual spending during the past six to 12 months (see Special Questions). Nearly
40 percent of the firms indicated that they plan to increase spending; 13
percent said they planned a decrease. There was a slight decline in the
percentage of firms expecting increases compared to January when the same
question was posed to the survey participants. The most frequently cited reasons
for planned increases in spending were expected sales growth, the need to
replace capital goods, and a high current capacity utilization rate.

Firms were also asked about their anticipated employment increases in the same
six- to 12-month period. Forty-three percent of the firms expect increases over
that period, and 11 percent expect decreases. Nearly 22 percent of firms expect
an increase of up to 3 percent, and about 14 percent of the firms expect
increases of between 4 and 6 percent. About 8 percent said they expect
employment increases of more than 7 percent.

Summary

Overall manufacturing conditions in the region weakened this month, as
indicators of current performance fell from their May readings. Indexes for
general activity, new orders, and shipments dropped to their lowest readings
in two years and suggest little or no growth for the month. Firms continued to
report higher prices for inputs and their own manufactured goods, but the
survey's price indicators fell again this month. Although current conditions
were reported weaker this month, manufacturers were more optimistic about
growth in manufacturing over the next six months.

Special Question

1. Do you expect your firm's spending on new plant and equipment over the next
six to 12 months to increase, decrease, or remain more or less unchanged
relative to your actual spending over the past six to 12 months?

June 2005 (%) January 2005 (%) January 2004 (%)

Increase 39.8 43.8 58.2
Decrease 13.3 15.7 12.7
No Change 47.0 40.4 29.1

2. What are the major factors behind your plan to increase capital spending?
(Top five chosen)*

Expected growth of sales is high 58.8
Need to replace non-IT capital goods 44.1
Capacity utilization is currently high 35.3
Firm's cash flow or balance sheet position has improved 26.5
Need to replace information technology (IT) equipment 23.5

3. What are the major factors behind your plans not to increase capital
spending? (Top five chosen)*

Limited need to replace other capital goods 38.3
Expected growth of sales is low 27.7
Capacity utilization is currently low 27.7
Limited need to replace information technology (IT) equipment 23.4
Firm's cash flow or balance sheet position has not improved 17.0

4. What percentage change in employment is anticipated over the next six to 12 months?

%
Stay at current levels 45.6

Increase of 0-3% 21.5
Increase of 4-6% 13.9
Increase of 7-9% 6.3
Increase of 10% or more 1.3
Total Increase 43.0

Decrease of 0-3% 5.1
Decrease of 4-6% 0
Decrease of 7-9% 2.5
Decrease of 10% or more 3.8
Total Decrease 11.4

Summary of returns

June 2005

May 2005

Activity in the region's manufacturing sector continued to expand, but at a
slower rate than in April. Indicators for general activity, new orders,
shipments, and employment remained positive but fell from their readings last
month. Firms continued to report a rise in prices for inputs and for their own
finished goods, although the survey's price indexes fell. Respondents were less
optimistic about future conditions this month than in April, but overall
expectations suggest that manufacturing growth is expected to continue.

Current Indicators Suggest Slower Growth

The diffusion index of current activity, the broadest measure of manufacturing
conditions, decreased from 25.3 in April to 7.3 this month. The index has been
positive for 24 consecutive months, but May's reading is the lowest since June
2003 (see Chart). The percentage of firms reporting increases in activity (26
percent) was greater than that of firms reporting decreases (19 percent). Over
55 percent reported no change in general activity compared to April. The new
orders and shipments indexes also remained positive but showed declines. The
shipments index fell 15 points. The new orders index fell five points, but 35
percent of the firms reported increases in new orders (slightly lower than last
month). Indicators for unfilled orders and delivery times were both close to
zero, suggesting little change overall.

The moderation in manufacturing activity is evident in replies to questions
about employment and hours worked. The percentage of firms reporting increased
employment was higher than that of firms reporting lower employment for the 20th
consecutive month. But the current employment index fell to its lowest point
since November 2003, and the current workweek index fell to its lowest level
since June 2003.

Price Indexes Moderate

Although firms continue to report higher production costs, the index for input
prices fell nearly 20 points. The percentage of firms reporting higher prices
for inputs was substantially below April's number.

Firms continue to report higher prices for their own manufactured goods: 22
percent reported higher prices; 6 percent reported lower. The diffusion index
for prices received, however, fell 12 points. Expectations about future prices
declined significantly this month. The future prices paid index fell 18 points,
and the future prices received index dropped 21 points.

Six-Month Indicators Fall Again

Overall expectations for the next six months remain generally optimistic,
although the index for future activity fell from a reading of 27.5 in April to
22.3, its lowest point since March 2001 (see Chart). Nevertheless, the portion
of firms anticipating improvement in business conditions over the next six
months (40 percent) continues to exceed the portion expecting deterioration (18
percent) by a wide margin.

Other future indicators declined this month. The future new orders index fell 18
points, and the future shipments index fell 12 points. On balance, firms expect
unfilled orders to decrease modestly over the next six months and delivery times
to decrease. The portion of firms that expect inventories to decrease over the
next six months (27 percent) is greater than that of firms expecting them to
increase (14 percent).

Firms' expectations for future employment and capital spending declined this
month. The future employment index fell from 19.2 in April to 7.0 in May, its
lowest reading since May 2003. More than 22 percent of the firms anticipate
adding workers over the next six months, down from 31 percent in April.
Following three consecutive months of improvement, the capital spending
diffusion index fell 16 points.

In special questions this month, firms were asked about the impact of recent
cost increases on prices expected for their products over the next three months
(see Special Questions). About 41 percent of respondents expect steady prices
for their own goods over the next three months (almost identical to this time
last year). Forty-four percent of the firms said they have already increased
prices since the beginning of the year. Twenty-seven percent are currently
experiencing shortages or delayed delivery of critical raw materials (39 percent
reported shortages last year). Fifty-five percent of those experiencing
shortages or delayed deliveries indicated that these problems have affected
rates of production.

Summary

Indicators of current activity continue to point to an expansion of the region's
manufacturing sector, although indicators for general activity, shipments,
employment, and work hours suggest a slower pace of growth. Firms continued to
report higher prices for inputs and for their own manufactured goods, but the
survey's price indexes moderated this month. Although manufacturers are
generally optimistic about growth in their sector, expectations for the next six
months fell again in May.

Business Outlook Survey
Summary of Returns
May 2005

Special Questions (May 2005)

1. Many firms have been reporting price increases for raw materials and energy
since the beginning of the year. What impact will these recent price increases
have on the prices of your finished products over the next three months?

May 2005 May 2004

We expect steady prices for our goods: 40.9 % 39.3%
We expect price increases of approximately:
0-5% 33.3% 25.6%
5-10% 10.8% 21.4%
10-15% 1.0% 8.6%

No response 14.0% 5.1%
Total 100.0% 100.0%

Since the beginning of the year, we have already increased our prices by:

May 2005 May 2004
0-5% 24.7% 26.5%
5-10% 16.1% 14.5%
10-15% 3.2% 4.3%
> 15% 0.0% 3.4%
Total 44.0% 48.7%

2. Are you currently experiencing shortages or delayed delivery of any critical
raw materials?*
May 2005 May 2004
Yes 26.9% 39.1%
No 73.1% 60.9%

If yes, have these problems affected rates of production?

May 2005 May 2004
Yes 55.0% 55.6%
No 45.0% 44.4%

* Some cited raw materials were steel and steel-related products (such
stainless, steel tube, bearings), cement, titanium, acrylic, aluminum, tires,
copper wire, printed circuit boards, and rubber compounds.

April 2005

Activity in the region's manufacturing sector continues to expand, according to
firms surveyed for this month's Business Outlook Survey. Most indicators point
to somewhat faster growth in April, with increases recorded in the indexes for
general activity, new orders, shipments, and employment. After moderating over
the past few months, indexes for the prices of inputs and finished goods rose
notably. The region's manufacturing executives remain generally optimistic that
growth will continue over the next six months.

Current Indicators Rise

The diffusion index of current activity, the broadest measure of manufacturing
conditions, increased from 11.4 in March to 25.3 this month, rebounding from its
lowest reading in 20 months (see Chart). The index has now remained positive for
23 consecutive months. More firms reported increases in activity (36 percent)
than decreases (11 percent), with a large segment (54 percent) reporting no
change from March. The new orders and shipments indexes both increased this
month: the new orders index rose seven points, and the shipments index rose
almost 15 points. Indicators for unfilled orders and delivery times changed
little from March. The current inventory index rose nine points and is now
positive for the first time in six months.

The increase in broad indicators of manufacturing activity this month was
accompanied by an increase in the survey's employment indicators. The percentage
of firms reporting increased employment (29 percent) was higher than that
reporting lower employment (13 percent) for the 19th consecutive month. The
current employment index increased seven points to its highest reading in three
months, and the current workweek index increased 18 points to its highest
reading in 14 months.

In special questions this month firms were asked about their current rate of
capacity utilization compared with six months ago (see Special Questions). The
results indicate that the average capacity utilization rate among the surveyed
firms is currently about 78.5 percent, up about one percentage point from six
months earlier. Forty-six percent of the surveyed firms plan to increase
capacity in 2005; of these, the largest segment (45 percent) indicated that
plant capacity would be increased 5 to 10 percent this year, and about 34
percent said capacity would grow more than 10 percent.

Price Pressures Are More Prevalent

Firms reported higher production costs this month, and after moderating over the
past few months, the prices paid diffusion index rose 21 points, to its highest
reading in three months. Nearly 56 percent of firms reported higher prices for
inputs this month, compared with 36 percent in March. Only 5 percent of the
manufacturers reported decreases in their input prices.

Higher prices for final manufactured goods were also more widespread this month.
Thirty-three percent of firms reported higher prices for their goods, and the
prices received index increased 13 points to its highest reading in six months.

Six-Month Outlook Remains Optimistic

Firms' outlook for the next six months remains generally optimistic, although
the index for future activity fell slightly this month. The future general
activity index decreased from 29.8 in March to 27.5. The index has remained
relatively steady for the past four months (see Chart). Other broad future
indicators also showed small or moderate declines: the future new orders index
fell one point, and the future shipments index fell about eight points.

Firms' expectations for future employment remain generally optimistic.
Thirty-one percent of the firms expect to add workers over the next six months.
The future employment index fell slightly (two points) from its reading in
March. Firms, on balance, expect increases in the average workweek, and the
future workweek index increased seven points. Firms' capital spending plans
continue to show improvement. The future capital spending index increased for
the third consecutive month and is now at its highest reading since February
2000.

Summary
Indicators of current activity improved this month and continue to reflect
growth in the region's manufacturing sector. Indexes for general activity, new
orders, shipments, and employment all increased from their readings in March.
Responses from this month's survey suggest that input price pressures were
greater this month, and more firms reported higher prices for their final
manufactured goods. Firms expect continued growth in their business over the
next six months, with almost one-third indicating that they will increase
employment. Firms' outlook for future capital spending continues to improve.

Special Questions (April 2005)

1. Which of the following best characterizes your capacity utilization rate?

Current Six Months Ago
Less than 60 8.9% 9.0%
60-65 7.6% 10.3%
65-70 11.4% 11.5%
70-75 12.7% 19.2%
75-80 13.9% 9.0%
80-85 10.1% 9.0%
85-90 13.9% 10.2%
90-95 11.4% 9.0%
95-100 10.1% 12.8%

Total 100.0% 100.0%
Estimated
Average 78.5% 77.4%

2. Does your company have plans to increase capacity at your plant in 2005?

Yes 45.8%
No 54.2%
Total 100.0%

If yes, by how much?

0-5% 21.1%
5-10% 44.7%
10-15% 18.4%
>15% 15.8%

Total 100.0%

Summary of Returns
April 2005

March 2005

Activity in the region's manufacturing sector continues to expand, but at a
slower rate than in February. Indicators for general activity, shipments, and
employment show a more moderate pace of growth. Firms continue to report a rise
in prices for inputs and for their own finished goods, although the survey's
price indicators have moderated from recent highs. The region's manufacturing
executives were slightly more optimistic this month than in February.

Manufacturing Expansion Continues

The diffusion index of current activity, the broadest measure of manufacturing
conditions, decreased from 23.9 in February to 11.4 in March. This is its lowest
reading in 20 months (see Chart). More firms reported increases in activity (27
percent) than reported decreases (15 percent). A large percentage (58 percent)
reported no change in general activity compared to February. The new orders and
shipments indexes remained positive this month, but the new orders index
increased two points, while the shipments index fell nine points. Indicators for
unfilled orders and delivery times changed little from February.

The moderation in manufacturing activity this month is evident in the responses
about employment and hours worked. The percentage of firms reporting increased
employment was higher than that reporting lower employment for the 18th straight
month. But the current employment index fell to its lowest reading in 16 months,
and the current workweek index also fell to its lowest level in four months.

In special questions this month, firms were asked about the actual level of
their inventories over the last three months and the economic factors that
influenced them (see Special Questions). Firms reporting higher levels of
inventory (41 percent) exceeded those reporting lower levels (27 percent). Of
the firms reporting higher levels, 32 percent replied that lower than
anticipated sales had a significant effect on inventories; 9 percent
indicated that expected higher energy prices had a slight impact on the larger
inventories, and 24 percent thought anticipated higher material costs had a
slight impact. Among firms reporting lower inventories, 23 percent said that
greater than anticipated sales had been a significant factor.

Price Indexes Moderate

Although firms continue to report higher production costs, the index for input
prices fell notably again this month: 36 percent of firms reported higher prices
for inputs, substantially lower than February (49 percent)and January (67
percent). The diffusion index for prices paid is at its lowest reading in 16
months.

Firms continue to report higher prices for their own manufactured goods:
23 percent reported higher prices; 8 percent reported lower. The diffusion index
for prices received is at its lowest reading in 11 months. Expectations about
future prices moderated this month. The future prices paid index decreased 21
points, and the future prices received index decreased 18 points.

Manufacturing Expansion Expected to Continue

Overall expectations for the next six months improved slightly in March. The
future general activity index increased from 26.5 to 29.8, its highest point in
three months but still below readings for most of last year (see Chart). Other
future indicators showed similar improvement: the future new orders index
increased six points and the future shipments index increased nine points. The
future inventory index increased notably, from -16.9 in February to 1.0 this
month. The future employment index increased from 11.8 in February to 21.5 in
March. On balance, firms that expect average work hours to increase slightly
edged out those that expect them to decrease. Firms' capital spending plans have
shown some improvement in recent months. The future capital spending index rose
to its highest point since September 2000.

Summary

Indicators continue to point to expansion of the region's manufacturing
sector, although indicators for general activity, shipments, employment, and
work hours fell from their readings in February. Firms continue to report higher
costs for inputs and manufactured goods this month, but the survey's price
indexes moderated from their recent highs. Most broad indicators of future
conditions edged higher this month with the outlook for employment and capital
spending showing notable improvement.

Special Questions (March 2005)

1. Over the past three months has your actual level of inventories:
Increased 40.5%
Decreased 27.4%
Not changed 32.1%

Total 100.0%

2. To what extent have any of the factors below influenced your actual level of
inventories?

For those reporting increases:

Significant Slight No Effect
Sales of products less than anticipated 32.4% 8.8% 58.8%
Sales of products greater than anticipated 14.7% 20.6% 64.7%
Anticipation of higher energy costs 0.0% 8.8% 91.2%
Anticipation of lower energy costs 0.0% 0.0% 100.0%
Anticipation of higher material costs 26.5% 23.5% 50.0%
Anticipation of lower material costs 0.0% 5.9% 94.1%
Other 11.7% 5.9% 82.4%

For those reporting decreases:

Significant Slight No Effect
Sales of products less than anticipated 9.1% 9.1% 81.8%
Sales of products greater than anticipated 22.7% 22.7% 54.6%
Anticipation of higher energy costs 0.0% 13.6% 86.4%
Anticipation of lower energy costs 4.5% 4.5% 91.0%
Anticipation of higher material costs 27.3% 13.6% 59.1%
Anticipation of lower material costs 0.0% 9.1% 90.9%
Other 13.6% 0.0% 86.4%

Summary of returns
March 2005

February 2005

Activity in the region's manufacturing sector continues to expand, according to
firms surveyed for this month's Business Outlook Survey. Most indicators point
to somewhat faster expansion in February, with increases recorded in the indexes
of general activity, new orders, and shipments. Nearly one-quarter of the firms
reported higher employment. Firms continue to report a rise in prices for
inputs and finished goods, although the price index for inputs fell
significantly this month. The region's manufacturing executives remain
generally optimistic that business conditions will improve over the next six
months.

Most Current Indicators Show Improvement
The diffusion index of current activity, the broadest measure of manufacturing
conditions, increased from 13.2 in January to 23.9 this month. The index has
now remained positive for 21 consecutive months (see Chart). The percentage of
firms reporting increases in activity (36 percent) was three times greater than
the percentage reporting decreases. The indexes for new orders and shipments
also remained positive this month. The current new orders index increased two
points and the shipments index increased eight points. Indexes for both unfilled
orders and delivery times improved this month. The delivery time index
increased 10 points and registered its first positive reading in four months.

Despite improvement in the survey's broad indicators, the employment index was
lower this month. The current employment index decreased from a reading of 17.0
in January to 12.3, its lowest point in 15 months. Still, the percentage of
firms reporting higher employment (24 percent) was greater than the percentage
reporting lower employment (11 percent) for the 17th consecutive month. The
current work week index remained positive and increased moderately from last
month.

Input Price Pressures Moderate

Although firms continue to report higher production costs, the index for input
prices fell notably this month. Nearly one-half of firms reported higher prices
for inputs, but this was substantially lower than the two-thirds that reported
higher prices in January. The diffusion index for prices paid declined almost
23 points and is at its lowest reading in 12 months.

Firms continue to report higher prices for their own manufactured goods.
Twenty-nine percent reported higher prices for their own goods; 4 percent
reported lower prices. The diffusion index for current prices received was
virtually unchanged from its reading in January.

Expectations about future prices, however, were higher this month. The future
prices paid index increased 21 points, and the future prices received index
increased 12 points.

Six-Month Forecast Improves Slightly

Overall expectations for the next six months remain generally optimistic,
although the index for future employment declined sharply this month. The
future general activity index increased slightly from 25.5 in January to 26.5
this month (see Chart). The percentage of firms expecting an increase in
activity over the next six months (40 percent) exceeded by a wide margin the
percentage expecting activity to decrease (14 percent). Other future indicators
remained positive, but the future new orders index decreased seven points, while
the future shipments index increased one point. Firms, on balance, expect
unfilled orders and delivery times to remain near current levels. Inventories
are expected to fall.

Firms' expectations for future employment deteriorated in this month's survey.
The future employment index decreased from a reading of 25.9 in January to 11.8.
The 14-point decline brings the index to its lowest reading in 21 months.

In a special question this month, firms were asked whether the share of products
they export will increase over the remainder of this year (see Special
Question). Although 70 percent of the firms expect no change in the share of
products they export, the percentage expecting an increase in export share (26
percent) exceeded the percentage expecting a decrease (4 percent).

Summary

Most indicators of current activity improved this month and continue to reflect
growth in the region's manufacturing sector. Indexes for general activity, new
orders, and shipments all increased from their readings in January. Employment
growth, as reflected in the current employment index, was more modest this
month. Responses from this month's survey suggest that input price pressures
moderated this month. Firms expect growth in their business to continue over
the next six months as future indicators for general activity and shipments were
higher this month. Indicators for future new orders and employment, however,
reflected more subdued expectations.

Special Question (February 2005)

Over the remainder of this year, do you expect the share of products you
export to:

Stay the same 70.2%
Increase 26.2%
Decrease 3.6%
Total 100.0%

Summary of Returns
February 2005

January 2005

Activity in the region's manufacturing sector continues to expand, but at a
slower rate than at the end of last year. Most of the survey's broad
indicators of activity show a more moderate pace of growth than in December.
Indicators for general activity, new orders, and shipments remained positive
but fell from their readings in December. Firms continue to report a rise in
prices for inputs and for their own finished goods. The region's manufacturing
executives were less optimistic this month than in December, but expectations
remain positive.

Current Indicators Are Lower This Month

The diffusion index of current activity, the broadest measure of manufacturing
conditions, decreased from a revised reading of 25.4 in December to 13.2 this
month. The index has remained positive for 20 consecutive months, but January's
reading is the lowest in 18 months (see Chart). The percentage of firms
reporting increases in activity this month (35 percent) was greater than the
percentage reporting decreases (22 percent). Nearly 43 percent report no change
in general activity compared to December. The new orders and shipments indexes
also remained positive this month but showed similar declines. The new orders
index fell 11 points; the shipments index fell 10 points. Indicators for
unfilled orders and delivery times were both negative this month and fell from
their readings in December.

Despite the weakening in most broad indicators, the survey's employment index
was slightly higher this month. The current employment index increased from a
revised reading of 14 in December to 17 this month. The percentage of firms
reporting higher employment (30 percent) exceeded the percentage reporting lower
employment (13 percent) for the 16th consecutive month. The current work week
index decreased eight points but remained positive.

Prices Are Reported Higher This Month

Firms continue to report higher production costs this month. More than 66
percent of the firms reported higher prices for purchased inputs in January, up
from 56 percent in the previous month. The diffusion index increased markedly
from a revised reading of 53.8 in December to 66.1 this month.

Thirty-one percent of firms reported that prices for their own manufactured
goods were higher this month, while 7 percent reported lower prices. The prices
received index increased slightly from 21.1 in December to 24.7 this month.
Expectations about future prices, however, were lower this month. The future
prices paid index decreased 20 points, and the future prices received index fell
almost 12 points.

Six-Month Indicators Fall Again

Overall expectations for the next six months remain generally optimistic,
although the index for future activity fell for the second consecutive month.
The future general activity index fell from a revised reading of 39.0 in
December to 25.5, its lowest reading since March 2001 (see Chart). The
percentage of firms expecting improvement in business conditions over the next
six months (39 percent) continues to exceed the percentage expecting
deterioration (14 percent). Other future indicators declined this month: The
future new orders index fell seven points, and the future shipments index fell
six points. On balance, firms expect unfilled orders to increase modestly over
the next six months and delivery times to decrease. The percentage of firms that
expect inventories to decrease over the next six months (29 percent) is greater
than the percentage that expect them to increase (19 percent).

Firms' expectations for future employment improved modestly this month. The
future employment index increased from a revised 23.3 in December to 25.9 in
January. More than 33 percent of the firms anticipate adding workers over the
next six months, while only 7 percent plan reductions. On balance, firms expect
average work hours to be nearly unchanged over the next six months.

Firms were asked about their plans for spending on new plant and equipment over
the next year, relative to actual spending this past year (see Special
Questions). About 44 percent plan to increase capital spending in 2005 compared
with 2004, 16 percent plan to spend less, and 40 percent will spend about the
same as they did last year. This represents a slight decline in the percentage
of firms planning higher capital outlays compared with a similar survey
conducted at the beginning of 2004. The most frequently cited reasons for the
planned increases in spending were the need to replace capital goods, expected
high growth in sales, and high capacity utilization rates. The reasons most
cited for not increasing capital spending were a limited need to replace
equipment, including information technology equipment, and expected low growth
in sales.

Summary

Indicators continue to point to expansion of the region's manufacturing sector,
although indicators for general activity, new orders, and shipments declined
from their readings in December. Despite evidence of moderation, 30 percent of
the surveyed firms report higher employment this month and the current
employment index increased modestly. Firms continue to report higher costs for
inputs and higher prices for manufactured goods this month. Most broad
indicators of future conditions fell from their readings in December, although
the outlook for employment growth improved modestly. The percentage of firms
expecting increases in capital spending in 2005 was slightly lower than the
percentage at the beginning of 2004.

Special note: The survey's annual historical revisions, which incorporate new
seasonal adjustment factors, were released on January 13, 2005. The information
is available at:
http://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/historicalrevisions2005.html.

Special Questions (January 2005)

1. How do you expect your firm's spending on new plant and equipment to change
over the next six to 12 months relative to your actual spending over the past
six to 12 months.

Jan 2005 (%) Jan 2004 (%)
Increase 43.8 58.2
Decrease 15.7 12.7
No change 40.4 29.1

2. What are the major factors behind your plan to increase capital spending?*
%
Expected growth of sales is high 48.7
Capacity utilization is currently high 46.2
Need to replace information technology equipment 33.3
Need to replace other capital goods 56.4
Cost or availability of external finance has improved 2.6
Other factors 35.9

What are the major factors behind your plan not to increase capital spending?*

%
Expected growth of sales is low 33.3
Capacity utilization is currently low 27.1
Limited need to replace information technology equipment 37.5
Limited need too replace other capital goods 37.5
Cost or availability of external finance has not improved 4.2
Firm's cash flow or balance sheet position has not improved 6.3
Outsourcing 12.5
Other factors 33.3

* Percentages add to greater than 100 because firms were asked to indicate more
than one factor, if applicable.

Summary of Returns
January 2005

*December data were revised, along with historical data, to incorporate new
seasonal adjustment factors.