December 2014 Firms responding to the Manufacturing Business Outlook Survey indicated that the pace of regional manufacturing activity remained positive but decreased in December. The survey’s current indicators for general activity, new orders, shipments, and employment suggest growth; however, their values for this month were significantly lower than last month’s. The survey's indicators of future activity show optimism about continued growth over the next six months but declined slightly from last month’s readings. Indicators Suggest Reduced Activity The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, decreased 16 points, from a reading of 40.8 in November to 24.5 this month (see Chart 1). The new orders and current shipments indexes also weakened significantly. The demand for manufactured goods, as measured by the current new orders index, decreased 20 points, from a reading of 35.7 last month to 15.7 this month. Shipments also fell, with its index falling 16 points to 16.1. Despite these declines from November, all the broad current activity indexes show a positive trend over the course of the current year. Firms’ responses suggest deterioration in the labor market compared with November (see Chart 2). The current employment index fell 15 points, as the percentage of firms reporting an increase in employees fell from 29 percent in November to 17 percent in December. The percentage of firms reporting a longer workweek was greater than the percentage reporting a shorter workweek (20 percent versus 14 percent). Nonetheless, the workweek index fell almost 2 points, to 6.2. Firms Report Modest Price Increases Input price pressures were reported to be slightly lower than last month’s: The prices paid index fell 3 points to 14.0 in December. Most firms reported that input prices were unchanged. With respect to prices received for manufactured goods, about 18 percent of the firms reported higher prices in December, and the index rose 1 point, to 12.5. Future Indicators Weaken but Still Reflect Expected Growth The diffusion index for future activity edged down 6 points, to 51.9, in December (see Chart 1). The future indexes for new orders and shipments both fell 3 points, but a majority of the firms continue to expect increased orders and shipments over the next six months. Firms also pulled back their expectations about employment growth. More than 51 percent of the firms are expecting no change in their employment levels over the next six months, compared with 41 percent last month. While the future employment index decreased, from 31.5 in November to 21.7 in December, the future workweek index rose about 8 points, to 18.3. Input and Labor Cost Expectations In this month’s special questions, firms were asked about their expectations for changes in various input and labor costs for the coming year (see Special Questions). The responses indicate that the largest average-annual increase is expected to be for health benefits (8.2 percent), which is similar to responses to the same questions in recent prior years. Wages and nonhealth benefits are expected to rise only 2.3 percent and 1.3 percent, respectively. Firms were also asked how the expected cost increases will compare with 2014 costs. For most categories, a majority of the firms reported that their costs would remain the same. One exception was the health benefits category, with 67 percent expecting higher costs. The share of firms indicating that their energy costs would be lower in 2014 was 48 percent, while the share that expected their energy costs to be the same was 32 percent. Summary The December Manufacturing Business Outlook Survey suggests a slower pace of expansion of the region’s manufacturing sector but general optimism about the future. Firms were less optimistic about employment increases over the next six months, however, and concerns about rising health-care costs continue to be reported. Special Questions (December 2014) 1. What percentage change in costs do you expect for the following categories in 2015? Energy Other Raw Intermediate Wages Health Nonhealth Materials Goods Benefits Benefits Benefits Decline of more than 4% 13.4% 1.5% 0.0% 0.0% 1.5% 1.5% Decline of 3-4% 6.0% 0.0% 0.0% 0.0% 1.5% 3.0% Decline of 2-3% 19.4% 6.0% 0.0% 2.9% 0.0% 1.5% Decline of 1-2% 9.0% 7.5% 3.2% 0.0% 0.0% 1.5% No Change 23.9% 20.9% 33.3% 13.2% 6.0% 34.3% Increase of 1-2% 7.5% 14.9% 17.5% 8.8% 0.0% 22.4% Increase of 2-3% 9.0% 29.9% 27.0% 48.5% 9.0% 17.9% Increase of 3-4% 6.0% 9.0% 11.1% 22.1% 7.5% 4.5% Increase of 4-5% 3.0% 6.0% 4.8% 2.9% 13.4% 13.4% Increase of 5-7.5% 0.0% 3.0% 1.6% 1.5% 14.9% 0.0% Increase of 7.5-10% 1.5% 1.5% 1.6% 0.0% 7.5% 0.0% Increase of 10-12.5% 0.0% 0.0% 0.0% 0.0% 13.4% 0.0% Increase of 12.5-15% 0.0% 0.0% 0.0% 0.0% 13.4% 0.0% Increase of more than 15% 1.5% 0.0% 0.0% 0.0% 11.9% 0.0% Avg. Expected Change (%) -0.4 1.5 1.7 2.3 8.2 1.3 2. How do these expected costs compare with those in 2014? Energy Other Raw Intermediate Wages Health Nonhealth Materials Goods Benefits Benefits Higher 19.4% 33.3% 31.1% 50.8% 66.7% 31.0% Same 32.3% 55.6% 65.6% 42.9% 27.0% 65.5% Lower 48.4% 11.1% 3.3% 6.3% 6.3% 3.4% December 2014 December vs. November Six Months from Now vs. December Prev. Prev. Diff.Inc. No chDec. Diff. Diff.Inc. No chDec. Diff. Index Index Index Index General Business 40.8 38.7 44.1 14.3 24.5 57.7 60.1 27.3 8.2 51.9 Conditions New Orders 35.7 35.4 43.7 19.7 15.7 48.8 58.1 26.4 12.4 45.7 Shipments 31.9 37.5 41.0 21.4 16.1 50.7 62.3 22.1 14.6 47.6 Unfilled Orders 7.1 18.3 62.2 16.9 1.5 18.5 28.8 55.6 12.3 16.5 Delivery Times 5.8 10.9 76.2 12.1 -1.2 6.9 14.5 74.7 10.6 3.9 Inventories 10.0 28.6 50.4 18.2 10.4 13.7 27.2 56.2 16.6 10.6 Prices Paid 17.3 23.0 65.4 9.0 14.0 35.5 30.0 58.2 6.5 23.5 Prices Received 11.5 17.8 76.4 5.2 12.5 20.4 29.1 68.9 1.9 27.2 Number of Emp. 22.4 16.9 72.3 9.7 7.2 31.5 32.2 51.1 10.5 21.7 Avg. Emp. Wrkwk. 7.8 20.1 62.8 13.8 6.2 10.6 27.1 62.5 8.8 18.3 Capital Ex. -- -- -- -- -- 23.0 29.1 58.1 7.4 21.7 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 data reflect information received through December 16, 2014. November 2014 Responses to the Manufacturing Business Outlook Survey suggest that regional manufacturing activity increased notably in November. The survey’s broad indicators for new orders and shipments showed similar improvement this month. Responding firms also indicated that employment was higher this month. In addition, the broadest indicator of future activity suggests that firms expect growth to continue over the next six months. Current Indicators Suggest Pickup in Growth The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased from 20.7 in October to 40.8 this month and has now been positive for nine consecutive months (see Chart). This was the highest reading since December 1993. The percentage of firms reporting increased activity this month (49 percent) was significantly greater than the percentage reporting decreased activity (9 percent). Both the current new orders and shipments indexes rose from their readings in October. The current new orders index, which reflects the demand for manufactured goods, increased 18 points, to 35.7. Over 44 percent of the firms reported a rise in new orders, compared with 36 percent last month. Labor market indicators showed improvement this month. The current employment index rose 10 points in November, to 22.4, and hit a 3½ year high. Twenty-nine percent of the firms reported increases in employment compared with 20 percent that reported increased employment last month. Firms also reported higher work hours, with the average workweek index rising from -1.3 to 7.8 this month. Price Indexes Moderate Both the prices paid and prices received diffusion indexes moderated this month. Input price pressures were reported to be less than last month: The prices paid index fell 10 points to 17.3 this month. Twenty-one percent of the firms reported higher prices paid this month compared with 29 percent last month. Reflecting the prices of their own manufactured goods, the prices received index decreased 9 points from October. The percent of firms reporting higher prices (19 percent) exceeded the percentage reporting lower prices (8 percent), but 72 percent of the firms reported steady prices. Six-Month Indicators Reflect Continued Optimism The survey’s future indicators suggest optimism for continued growth. This month, the future general activity index rose 3 points, to 57.7 (see Chart). Nearly 60 percent of the firms expect increases in activity over the next six months; only 2 percent of the firms indicated that they expect decreases over the next six months. The indexes for future new orders and shipments also remained at relatively high levels but fell slightly. The future employment index rose almost 4 points to 31.5, with nearly 40 percent of the firms expecting to increase employment over the next six months. Special Questions Show Improved Employment Plans In special questions this month, manufacturers were asked to provide details about expected changes in employment over the next 12 months, including factors influencing these changes. Nearly 56 percent of the firms expect to increase their employment over the next 12 months (see Special Questions). This represents a steady increase since January 2013. When firms were asked to rank the three most important factors influencing their future hiring plans, expected sales growth was the most cited factor and also deemed the most important individual factor. The need for skills not possessed by current staff and having an overworked current staff were the next highest ranked factors influencing hiring plans. When asked about factors restraining hiring plans, “to keep operating costs low” was the most cited among the top three factors, but “cannot find workers with required skills” was the most frequently cited most important factor. Firms were also asked about how the Affordable Care Act was influencing their plans for hiring: Seventy percent of the firms indicated that no changes were made in overall staffing because of the law; 11 percent of the firms indicated that they had reduced full-time hiring; 8 percent indicated that they have increased the use of contract workers. Almost 8 percent of the firms were not affected by the employer mandate. Summary The November Manufacturing Business Outlook Survey indicated a pickup in the growth of the region’s manufacturing sector. Firms reported continued increases in overall activity, new orders, shipments, and employment this month. The survey’s future activity indexes remained at high readings, suggesting continued optimism about manufacturing growth. Firms were more optimistic about employment increases over the next six to 12 months. Special Questions (November 2014) 1. Do you expect your firm to increase employment, leave employment unchanged, or decrease employment over the next 12 months? November 2014 January 2014 January 2013 January 2012 January 2011 (current) Increase 55.7% 46.5% 33.8% 42.5% 52.5% No change 35.4% 46.4% 50.7% 45.2% 11.2% Decrease 8.9% 7.1% 15.5% 12.3% 36.3% 2. What are the three most important factors behind your plans to increase employment? Most Second Most Third Most Total Important Important Important Expected growth in sales is high 72.1% 7.3% 12.1% 91.5% Firm needs skills not possessed by current staff 9.3% 34.1% 21.2% 64.7% Current staff is overworked 11.6% 24.4% 21.2% 57.2% There is decreased economic or financial uncertainty 0.0% 12.2% 24.2% 36.4% Other factors 4.7% 14.6% 0.0% 19.3% Reduced employment too much during the recession 2.3% 2.4% 12.1% 16.9% Firm's financial position has improved 0.0% 4.9% 9.1% 14.0% Labor costs have fallen 0.0% 0.0% 3.0% 3.0% 3. What are the three most important factors, if any, restraining your hiring plans? Most Second Most Third Most Total Important Important Important Want to keep operating costs low 18.1% 29.6% 24.0% 71.7% Cannot find workers with required skills 29.2% 18.5% 10.0% 57.7% Uncertainty about the cost of health insurance 6.9% 14.8% 18.0% 39.8% Expected growth in sales is low 20.8% 1.9% 8.0% 30.7% Uncertainty about other regulations or gov't policies 4.2% 13.0% 12.0% 29.1% No source of restraint 9.7% 0.0% 14.0% 23.7% Current staff is underutilized/ working reduced hours 4.2% 11.1% 6.0% 21.3% Labor costs are high 2.8% 5.6% 6.0% 14.3% Other factors 2.8% 3.7% 2.0% 8.5% Firm's financial position has deteriorated 1.4% 1.9% 0.0% 3.2% 4. How did you adjust your overall staffing in response to the Affordable Care Act (ACA) going into effect? Percent of Respondents* No changes were made 70.0 Increased full-time hiring 0.0 Reduced full-time hiring 11.3 Increased part-time hiring 5.0 Reduced part-time hiring 3.8 Increased use of contract workers 7.5 Reduced use of contract workers 5.0 Increased the hours of existing employees 7.5 Reduced the hours of existing employees 2.5 Firm not affected by the ACA employer mandate 7.5 Other 7.5 * Percentages add to greater than 100 percent because firms could choose multiple categories. Summary of Returns November 2014 November vs. October Six Months from Now vs. November Prev. Prev. Diff.Inc. No chDec. Diff. Diff.Inc. No chDec. Diff. Index Index Index Index General Business 20.7 49.2 41.2 8.5 40.8 54.5 59.4 27.9 1.7 57.7 Conditions New Orders 17.3 44.4 46.9 8.7 35.7 51.4 58.2 21.8 9.4 48.8 Shipments 16.6 42.7 43.8 10.9 31.9 52.3 55.7 25.7 5.1 50.7 Unfilled Orders 11.6 16.9 73.2 9.8 7.1 12.1 22.4 63.5 3.9 18.5 Delivery Times 0.6 17.2 71.4 11.4 5.8 12.8 13.8 69.1 6.9 6.9 Inventories 14.8 23.3 58.4 13.3 10.0 8.9 28.5 43.3 14.8 13.7 Prices Paid 27.6 21.2 73.4 3.9 17.3 32.9 40.4 46.2 4.9 35.5 Prices Received 20.8 19.1 72.2 7.6 11.5 22.5 27.4 56.6 7.0 20.4 Number of Emp. 12.1 29.0 61.7 6.6 22.4 28.0 39.8 41.4 8.3 31.5 Avg. Emp. Wrkwk. -1.3 19.1 63.0 11.3 7.8 16.2 22.2 53.8 11.6 10.6 Capital Ex. -- -- -- -- -- 18.9 28.4 58.3 5.4 23.0 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 data reflect information received through November 18, 2014. October 2014 Firms responding to the October Manufacturing Business Outlook Survey indicated continued growth in the region’s manufacturing sector this month. Most broad indicators of current growth, while positive, weakened from higher readings last month. The current activity, shipments, and employment indexes declined, while the index for new orders was at a higher level compared with September. A larger percentage of firms reported higher prices for their own manufactured goods this month. The survey’s indicators for future manufacturing conditions fell from higher readings but continued to reflect general optimism about growth in activity and employment over the next six months. Indicators Reflect Continuing Growth The diffusion index for current activity edged down from a reading of 22.5 to 20.7 this month (see Chart 1). More than 34 percent of the firms reported an increase in activity; nearly 14 percent reported a decrease in activity. The current shipments and employment indexes also declined but remained positive, while the current new orders index increased 2 points. Firms reported an increase in inventories this month; the current inventory index increased 9 points to its highest reading in 10 months. The survey’s indicators for labor market conditions suggest some moderation in employment growth this month. Although positive for the 16th consecutive month, the employment index decreased 9 points. The percentage of firms reporting increases in employment (20 percent) still exceeded the percentage reporting decreases (8 percent). For the first time in eight months, the workweek index was slightly negative. Firms Report Higher Prices for Manufactured Goods Input price pressures were reported to be nearly the same as last month: The prices paid index was nearly unchanged from September, at 27.6 (see Chart 2). More than 29 percent of the firms reported higher input prices; 2 percent reported lower input prices. With respect to prices received for manufactured goods, 21 percent of the firms reported higher prices, up from 13 percent last month. The prices received index increased 12 points, to 20.8, its highest reading since April 2011. Future Indicators Weaken but Still Reflect Expected Growth The diffusion index for current activity edged down 2 points, to 54.5 (see Chart 1). The future index for new orders held steady, but the future shipments index decreased 7 points. Firms pulled back their expectations about employment growth over the next six months. Nearly 33 percent of the firms are expecting growth in their employment levels over the next six months, compared with 44 percent last month. The future employment index decreased, from 39.6 to 28.0. 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 different categories of capital spending next year (see Special Questions). The average capacity utilization rate among the firms polled was slightly more than 78 percent, which was an increase from the rate indicated one year earlier (76.5 percent). The share of firms expecting to increase spending on all capital categories (except structures) was higher than the share of firms expecting decreases. For most capital spending categories, higher capacity utilization rates were associated with expected increases in spending. For example, the current utilization rate among firms expecting to increase spending on noncomputer equipment (84 percent) was notably higher than those expecting to decrease spending (69 percent). Summary The October Manufacturing Business Outlook Survey suggests continued expansion of the region’s manufacturing sector. Firms reported continued increases in new orders but slower growth in activity, shipments, and employment this month. The survey’s future activity indexes remained at high readings, suggesting continued optimism about manufacturing growth. Firms were less optimistic about employment increases over the next six months, but one-third of the firms still expect to hire additional workers. Special Questions (October 2014) 1. Which of the following best characterizes your plant’s current and past capacity utilization rate? Capacity Utilization Rate Current Same Time Last Year (% of reporters) (% of reporters) Less than 60% 13.4 10.8 60%-65% 3.0 7.7 65%-70% 10.5 13.8 70%-75% 10.5 6.2 75%-80% 11.9 20.0 80%-85% 13.4 16.9 85%-90% 19.4 13.8 90%-95% 10.4 3.1 95%-100% 7.5 7.7 Average utilization rate 78.1 76.5 U.S. utilization rate* 78.0 76.9 2. Do you expect the following capital expenditure categories over the next year to be higher than, the same, or lower than in the current year? Higher Same Lower Diffusion (% of (% of (% of Index reporters) reporters) reporters) Software 28.8 54.5 16.7 12.1 Computer & related hardware 27.3 59.1 13.6 13.6 Noncomputer equipment 31.3 46.8 21.9 9.4 Energy-saving investments 17.7 72.6 9.7 8.1 Structure 17.7 56.5 25.8 -8.6 Exhibit 1: Average percent capacity utilization rates for firms in categories above. Capacity Capacity Capacity Utilization Utilization Utilization Rate for Rate for Rate for Higher Spending Same Spending Lower Spending in Category in Category in Category Software 81.6 78.2 71.1 Computer & related hardware 78.8 78.5 74.4 Noncomputer equipment 84.0 79.6 69.3 Energy-saving investments 78.2 78.2 76.7 Structure 81.4 78.4 75.5 Average utilization rate 80.8 78.6 73.4 *Capacity Utilization: U.S. Manufacturing (NAICS) “Current” shows rate for August 2014; “Same Time Last Year” shows rate for October 2013. Summary of Returns October 2014 October vs. September Six Months from Now vs. October Prev. Prev. Diff.Inc. No chDec. Diff. Diff.Inc. No chDec. Diff. Index Index Index Index General Business 22.5 34.2 50.4 13.5 20.7 56.0 57.8 31.1 3.3 54.5 Conditions New Orders 15.5 36.2 43.1 18.9 17.3 51.7 58.0 32.7 6.6 51.4 Shipments 21.6 34.3 47.0 17.7 16.6 58.8 58.5 33.3 6.2 52.3 Unfilled Orders 5.0 24.0 63.5 12.4 11.6 19.6 23.7 62.9 11.6 12.1 Delivery Times 3.8 11.9 76.3 11.3 0.6 6.8 16.1 76.1 3.4 12.8 Inventories 6.1 29.1 55.4 14.3 14.8 11.9 27.2 46.7 18.4 8.9 Prices Paid 27.0 29.4 68.4 1.8 27.6 46.2 38.5 50.8 5.6 32.9 Prices Received 8.8 20.8 79.2 0.0 20.8 31.3 27.1 64.9 4.7 22.5 Number of Emp. 21.2 20.4 70.6 8.3 12.1 39.6 33.1 58.2 5.1 28.0 Avg. Emp. Wrkwk. 4.4 12.6 70.1 13.9 -1.3 8.9 22.6 65.6 6.4 16.2 Capital Ex. -- -- -- -- -- 23.7 28.3 52.2 9.4 18.9 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 data reflect information received through October 14, 2014. September 2014 Firms responding to the Manufacturing Business Outlook Survey indicated continued growth in the region’s manufacturing sector in September. Although the current activity index fell from its relatively high reading in August, the other broad indicators increased from their readings last month. The survey’s indicators for future manufacturing conditions reflect general optimism about growth in activity and employment over the next six months. Indicators Reflect Continuing Growth The diffusion index for current activity fell from a reading of 28.0, its highest reading since March 2011, to 22.5 this month (see Chart). The current new orders and shipments indexes edged higher this month, however, increasing 1 point and 5 points, respectively. Indexes for both unfilled orders and delivery times were positive this month, suggesting continued strengthening conditions. The survey’s indicators for labor market conditions suggest notable improvement this month. The employment index increased 12 points to its highest reading since May 2011. The percentage of firms reporting increases in employment (26 percent) exceeded the percentage reporting decreases (5 percent). The workweek index was positive for the seventh consecutive month but fell nearly 9 points. Price Indexes Increase Moderately Over 31 percent of the firms reported higher input prices this month, just slightly higher than the level reported last month. The prices paid index increased 2 points. The prices received index, which reflects firms’ own final goods prices, also edged slightly higher, from 4.2 to 8.8. The percent of firms reporting higher prices (13 percent) exceeded the percentage reporting lower prices (4 percent), although nearly 80 percent of the firms reported steady prices. Firms Expect Increases in Employment Most of the survey’s indicators of future growth declined from their 22-year high readings reached last month. The future general activity index decreased 10 points (see Chart). The future indexes for new orders and shipments also decreased this month, declining 7 and 9 points, respectively. Firms raised their expectations about employment growth over the next six months. Nearly 44 percent of the firms are expecting growth in their employment levels over the next six months, compared with 37 percent last month. The future employment index increased sharply, from 24.7 to 39.6, its highest reading since September 1983. In Special Questions, firms were asked to estimate their total production growth for the third quarter ending this month along with expected growth for the fourth quarter. Firms anticipating increases in third quarter production (59 percent) exceeded those anticipating decreases (29 percent). Firms expect average production growth of 2 percent in the third quarter. With regard to the fourth quarter, the percentage of firms forecasting acceleration in the rate of their production growth (54 percent) was greater than the percentage forecasting deceleration in growth (21 percent). Summary The September Manufacturing Business Outlook Survey suggests continued expansion of the region’s manufacturing sector. Firms reported continued increases in overall activity, new orders, shipments, and employment this month. The survey’s future activity indexes remained at high readings, suggesting continued optimism about manufacturing growth. Firms were more optimistic about employment increases over the next six months. NOTE: On Tuesday, September 23, at 10:00 a.m. ET, the Bank will launch the release of the Nonmanufacturing Business Outlook Survey. Special Questions (September 2014)* 1. How will your firm’s total production for the third quarter compare with that of the second quarter? An increase of: % of firms Subtotals 10% or more 8.8% 8-10% 6.3% 6-8% 11.3% 4-6% 6.3% 2-4% 11.3% 0-2% 15.0% Subtotal 58.8% No change 12.5% A decline of: 0-2% 6.3% 2-4% 8.8% 4-6% 6.3% 6-8% 5.0% 8-10% 2.5% 10% or more 0% Subtotal 28.7% Average growth expected for all firms: 2.0% 2. For the upcoming fourth quarter, how much growth do you expect at your plant compared with the third quarter? Significant acceleration 1.3% Some acceleration 22.5% Slight acceleration 30.0% Subtotal 53.8% No change 25.0% Slight deceleration 8.8% Some deceleration 11.3% Significant deceleration 1.3% Subtotal 21.2% *Percentages may not add to 100 percent because not all firms answered all questions. September 2014 September vs. August Six Months from Now vs. September Prev. Prev. Diff.Inc. No chDec. Diff. Diff.Inc. No chDec. Diff. Index Index Index Index General Business 28.0 42.2 38.0 19.8 22.5 66.4 56.0 38.6 0.0 56.0 Conditions New Orders 14.7 37.6 37.0 22.1 15.5 58.9 55.1 36.6 3.4 51.7 Shipments 16.5 40.4 40.8 18.8 21.6 67.4 58.8 33.9 0.0 58.8 Unfilled Orders -4.1 23.8 56.7 18.8 5.0 26.6 27.2 58.3 7.6 19.6 Delivery Times 4.5 11.4 79.7 7.6 3.8 9.4 15.9 68.9 9.1 6.8 Inventories 8.3 21.9 58.7 15.8 6.1 10.5 26.2 52.0 14.3 11.9 Prices Paid 24.9 31.1 64.5 4.2 27.0 50.3 49.3 38.4 3.1 46.2 Prices Received 4.2 13.0 79.7 4.2 8.8 29.5 36.8 49.2 5.5 31.3 Number of Emp. 9.1 25.7 69.8 4.5 21.2 24.7 43.6 46.7 4.0 39.6 Avg. Emp. Wrkwk. 13.3 18.9 66.6 14.5 4.4 17.8 24.4 52.8 15.5 8.9 Capital Ex. -- -- -- -- -- 17.5 31.1 52.7 7.4 23.7 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 data reflect information received through September 15, 2014. August 2014 Indicators for the August Business Outlook Survey suggest that the region’s manufacturing sector is continuing to grow. The survey’s indicator for general activity was higher this month, but indicators for new orders, shipments, and employment, while positive, fell from their readings in July. The survey’s broad indicators of future activity increased, suggesting that firms remain optimistic about continued growth over the next six months. Activity Index Highest Since 2011 The diffusion index of current general activity increased from a reading of 23.9 in July to 28.0 this month. The index has increased for three consecutive months and is at its highest reading since March 2011 (see Chart). The new orders and shipments indexes remained positive but fell to near their levels in June. The new orders index decreased 20 points, while the shipments index decreased 18 points. The current indicators for labor market conditions suggested continued modest expansion in employment. The employment index remained positive for the 14th consecutive month but declined 3 points from its reading in July. The percentage of firms reporting increases in employment (25 percent) exceeded the percentage reporting decreases (16 percent). The workweek index was positive for the sixth consecutive month and increased 1 point. Price Pressures Moderate Nearly 30 percent of the firms reported higher input prices this month, but this was lower than the 36 percent that reported input price increases last month. The prices paid index decreased nearly 10 points from July to its lowest reading in three months. The prices received index, which reflects firms’ own final goods prices, also decreased, from 16.8 to 4.2. The 12 percent of firms reporting higher prices was notably lower than the 21 percent reporting higher prices last month. Over 79 percent of the firms reported steady prices for their own products this month. Six-Month Indicators Improve Most of the survey’s broad indicators of future growth showed improvement this month. The future general activity index increased 8 points and is at its highest reading since June 1992 (see Chart). The index has increased for four consecutive months. The future indexes for new orders and shipments also improved this month, increasing 5 and 10 points, respectively. Firms remained relatively optimistic with respect to employment growth, although the future employment index fell 4 points. Nearly 37 percent of the firms are expecting growth in their employment levels over the next six months, but 12 percent of the firms expect employment reductions. While most broad indicators of future growth have been improving, the survey’s future capital spending index has been slipping. Although the index decreased just 1 point this month, its reading, at 17.5, is now the lowest it has been in seven months. In special questions this month, firms were asked qualitative questions about the effects of the Affordable Care Act (ACA) and how, if at all, they are making changes to their employment and compensation, including benefits. Over 18 percent of the firms indicated that the number of workers they employ was lower because of the ACA; 3 percent indicated higher levels. The same percentage (18 percent) indicated that the proportion of part-time workers had increased. Regarding health insurance benefit coverage, 41 percent said their coverage was unchanged, but 52 percent indicated modifications to their offerings. Among those modifying their health insurance coverage, higher deductibles (91 percent), higher worker contributed premiums (88 percent), and higher out-of-pocket maximums (77 percent) were the most cited changes. Summary The August Business Outlook Survey suggests continued expansion of the region’s manufacturing sector, although some indicators returned to near their readings in June. Firms reported overall continued increases in general activity, new orders, shipments, and employment this month. The survey’s future activity continued to improve, indicating that firms expect continued growth in manufacturing over the next six months. Special Questions (August 2014) 1. How, if at all, are you changing (or have you changed) any of the following because of the effects the Affordable Care Act (ACA) is having on your business? Lower Higher No change % % % The number of workers we employ (including full time and part time) is… 18.2 3.0 78.8 The proportion of workers who are part time is… 1.5 18.2 80.3 The amount of work we outsource to other firms is… 3.0 13.7 83.3 Our wage and salary compensation per worker is… 15.1 16.7 68.2 Prices we charge to our customers are... 0.0 28.8 71.2 2 a. Select one (1) of the following five (5) responses as to how your business is changing (or has changed) its health coverage policies in response to the ACA: % We do not offer health insurance and don’t plan to. 0.0 We are keeping our plan unchanged. 40.9 We are dropping health insurance. 3.0 We are planning to offer coverage for the first time. 0.0 We made (or are making) modifications. 51.5 b. Companies that made (or are making) modifications: Lower Higher No change % % % The proportion of our employees covered is… 14.7 17.6 67.6 Our employee contribution to premiums is… 2.9 88.2 8.8 Deductibles are… 0 91.2 8.8 Out-of-pocket maximums are… 2.9 76.5 20.6 Copays are… 2.9 64.7 32.4 The range of medical coverage is… 41.2 2.9 55.9 The size/breadth of the network is… 26.5 0 73.5 Note: The manufacturing firms responding to the survey reported an average of 247 full-time and part-time employees; 5.8 percent of the employees were part time. Summary of Returns August 2014 August vs. July Six Months from Now vs. August Prev. Prev. Diff.Inc. No chDec. Diff. Diff.Inc. No chDec. Diff. Index Index Index Index General Business 23.9 34.6 58.9 6.5 28.0 58.1 66.4 33.6 0.0 66.4 Conditions New Orders 34.2 32.3 50.2 17.6 14.7 53.5 61.4 32.4 2.6 58.9 Shipments 34.2 32.1 50.3 15.7 16.5 57.9 67.4 28.8 0.0 67.4 Unfilled Orders 9.1 14.1 65.8 18.3 -4.1 13.8 26.7 68.4 0.1 26.6 Delivery Times 9.6 14.1 76.3 9.6 4.5 4.7 15.1 76.8 5.7 9.4 Inventories 4.8 20.8 66.7 12.5 8.3 0.5 23.3 59.0 12.8 10.5 Prices Paid 34.7 29.6 65.0 4.7 24.9 38.2 50.3 46.4 0.0 50.3 Prices Received 16.8 11.8 79.3 7.6 4.2 23.5 35.9 52.4 6.4 29.5 Number of Emp. 12.2 24.7 59.7 15.6 9.1 29.1 36.7 51.0 12.0 24.7 Avg. Emp. Wrkwk. 12.5 21.2 70.8 8.0 13.3 14.4 25.0 65.8 7.3 17.8 Capital Ex. -- -- -- -- -- 18.9 24.9 63.6 7.4 17.5 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 data reflect information received through August 19, 2014. July 2014 Firms responding to the Business Outlook Survey indicated continued expansion in the region’s manufacturing sector in July. The survey’s indicators for general activity, new orders, shipments, and employment were all positive this month and increased from their readings in June. The survey’s indicators of future activity also increased or stayed at high levels, suggesting that firms remain optimistic about continued growth over the next six months. Activity Index at Highest Level Since 2011 The diffusion index of current general activity increased from a reading of 17.8 in June to 23.9 this month. The index has remained positive for five consecutive months and is at its highest reading since March 2011 (see Chart). The current new orders and shipments indexes increased notably this month, increasing 17 points and 19 points, respectively. Both unfilled orders and delivery times indexes were positive for the second consecutive month, suggesting continued strengthening conditions. The current indicators for labor market conditions also suggest improved conditions this month. The employment index remained positive, and, although it increased less than 1 point, it has improved for four consecutive months. The percentage of firms reporting increases in employment (24 percent) exceeded the percentage reporting decreases (12 percent). The workweek index was positive for the fifth consecutive month and increased 5 points. Some Firms Report Higher Prices About 36 percent of the firms reported higher input prices this month, near the level reported last month. The prices paid index changed little from its reading in June, although it had increased 24 points over the previous two months. The prices received index, which reflects firms’ own final goods prices, increased slightly, from 14.1 to 16.8. The percent of firms reporting higher prices (21 percent) exceeded the percentage reporting lower prices (4 percent), although 72 percent of the firms reported steady prices. Indicators Reflect Continued Optimism Most of the survey’s broad indicators of future growth showed improvement again this month. The future general activity index increased 6 points and is at its highest reading since last October (see Chart). The index has increased for three consecutive months. The future indexes for new orders and shipments moved in opposite directions this month, but both remained at very high readings. Firms remained relatively optimistic with respect to employment growth, although the future employment index fell 2 points. Nearly one-third of the firms are expecting growth in their employment levels over the next six months. Only 4 percent of the firms expect employment reductions. In special questions this month, manufacturing firms were asked about the contribution of growth in export business over the past year. Among the manufacturing firms that export, exports as a percentage of sales have increased at 39 percent of the firms; however, most of the firms (37 percent) indicated their export share had increased modestly. About 7 percent indicated that exports as a share of sales have decreased. Firms were also asked about the type of products being exported. Intermediate products represented the most cited type of products being exported (40 percent), followed by final business products (25 percent), capital goods (19 percent), and final consumer products (11 percent). Summary The July Business Outlook Survey suggests continued broad-based expansion of the region’s manufacturing sector. Firms reported continued increases in overall activity, new orders, shipments, and employment this month. The survey’s future activity indexes remained at high readings, indicating that firms expect continued growth, including employment increases, over the next six months. Special Questions (July 2014)* 1. Over the past year, exports as a share of your total sales have: Increased substantially 1.8% Increased modestly 36.8% Increased Subtotal 38.6% No change 54.4% Decreased modestly 7.0% Decreased substantially 0% Decreased subtotal 7.0 2. Which one of the following categories best characterizes the type of products being exported? Intermediate products 39.6% Final business products 24.5% Capital goods 18.9% Final consumer products 11.3% Other 5.7% *Over 83 percent of the reporting firms reported export business. Summary of Returns July 2014 July vs. June Six Months from Now vs. July Prev. Prev. Diff.Inc. No chDec. Diff. Diff.Inc. No chDec. Diff. Index Index Index Index General Business 17.8 32.8 53.8 8.9 23.9 52.0 59.8 33.9 1.7 58.1 Conditions New Orders 16.8 40.2 51.1 6.0 34.2 57.8 56.1 38.2 2.6 53.5 Shipments 15.5 45.3 43.6 11.1 34.2 48.0 60.4 31.0 2.6 57.9 Unfilled Orders 11.5 22.7 60.6 13.6 9.1 24.7 21.6 66.2 7.9 13.8 Delivery Times 6.0 17.3 72.8 7.7 9.6 -3.5 16.0 66.6 11.3 4.7 Inventories -6.7 15.7 69.1 11.0 4.8 30.5 15.6 62.3 15.1 0.5 Prices Paid 35.0 35.8 63.1 1.1 34.7 44.5 40.9 50.3 2.7 38.2 Prices Received 14.1 21.0 71.9 4.2 16.8 30.0 31.1 54.9 7.5 23.5 Number of Emp. 11.9 24.3 63.7 12.0 12.2 31.4 32.6 56.8 3.5 29.1 Avg. Emp. Wrkwk. 7.3 22.7 64.4 10.2 12.5 16.7 29.1 56.0 14.8 14.4 Capital Ex. -- -- -- -- -- 31.0 26.8 60.9 8.0 18.9 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 data reflect information received through July 15, 2014. June 2014 Manufacturing firms responding to the June Business Outlook Survey indicated that regional manufacturing activity expanded this month. The survey’s indicators for general activity, new orders, and shipments were positive for the fourth consecutive month and improved from their readings in May. Current employment was also higher among the reporting firms this month. The survey’s indicators of future activity improved notably, suggesting that firms are more optimistic about continued growth over the next six months. Indicators Reflect Continued Growth The diffusion index of current general activity increased from a reading of 15.4 in May to 17.8 this month. The index has remained positive for four consecutive months and is at its highest reading since last September (see Chart). The current new orders and shipments indexes also moved higher this month, increasing 6 points and 1 point, respectively. Indicators also suggest improved labor market conditions this month. The employment index remained positive for the 12th consecutive month and increased 4 points. The percentage of firms reporting increases in employment (22 percent) remained higher than the percentage reporting decreases (11 percent). The workweek index was also positive for the fourth consecutive month and increased 4 points. Firms Report Higher Input Prices The surveyed respondents indicated that price increases for purchased inputs were more widespread this month. The prices paid index increased 12 points and has now increased 24 points over the past two months. Over 36 percent of the firms reported higher input prices this month compared with 25 percent last month. The prices received index, reflecting firms’ own final goods prices, however, declined from 17.0 to 14.1. The percent of firms reporting higher prices (22 percent) exceeded the percentage reporting lower prices (8 percent), but 71 percent of the firms reported steady prices. Forecast Indicators Show Notable Improvement Most of the survey’s broad indicators of future growth showed notable improvement this month. The future general activity index increased 15 points and is at its highest reading since October (see Chart). The future indexes for new orders and shipments also showed improvement, increasing 21 points and 9 points, respectively. In addition, firms were more optimistic with respect to employment growth: The future employment index rose 7 points. The percentage of firms expecting growth in their employment edged higher, from 31 percent in May to 35 percent this month. In special questions this month, firms were asked to provide estimates of production growth for the second half of the year compared with the first half. Nearly 74 percent of the firms forecast positive growth in the second half of the year. Only 13 percent of the firms forecast declines in the second half. About 56 percent of the firms indicated that production growth would represent an acceleration compared with the growth in the first half of the year. Only 17 percent indicated that growth would represent a deceleration. Firms were also asked how production increases would be accomplished in terms of increases in labor inputs. Twenty-nine percent of the firms indicated that they would hire additional workers; 28 percent said the increases would be accomplished by increasing the productivity of their existing workforce without hiring; and 12 percent indicated that they would increase the hours of existing staff without hiring additional workers. Summary The June Business Outlook Survey suggests continued expansion of the region’s manufacturing sector. Firms reported continued increases in overall activity, new orders, shipments, and employment this month. An increased share of firms reported higher input prices this month. The survey’s future activity indexes showed a notable improvement, indicating that firms expect continued growth and employment increases over the next six months. Special Questions (June 2014) 1. What change, if any, do you anticipate in your firm’s production during the second half of 2014 compared with the first half of the year? Increase of more than 4% 47.8% Increase of 2-4% 18.8% Increase of less than 2% 7.3% Total Increase: 73.9% No change 13.0% Decrease of less than 2% 7.3% Decrease of 2-4% 0.0% Decrease of more than 4% 5.8% Total Decrease: 13.1% Average expected growth for all firms: 3.0% 2. Would this represent an acceleration or deceleration of growth from the first half of 2014? Significant acceleration 7.6% Some acceleration 48.5% Total acceleration: 56.1% No change 27.3% Some deceleration 10.6% Significant deceleration 6.0% Deceleration: 16.6% 3. If you expect to increase production over the next six months, this will be accomplished by: Hiring additional workers 29.0% Increasing productivity of current staff, without hiring 27.5% Increasing work hours of current staff, without hiring 11.6% Other 4.3% We do not anticipate increases in production 27.6% Summary of Returns June 2014 June vs. May Six Months from Now vs. June Prev. Prev. Diff. Inc. No ch. Dec. Diff. Diff. Inc. No ch. Dec. Diff. Index Index Index Index General Busines 15.4 36.4 42.5 18.6 17.8 37.4 58.5 31.5 6.5 52.0 Conditions New Orders 10.5 39.2 38.2 22.4 16.8 36.5 59.7 33.6 1.9 57.8 Shipments 14.2 35.6 42.0 20.1 15.5 38.7 52.4 32.9 4.4 48.0 Unfilled Orders -2.5 25.4 59.1 14.0 11.5 17.0 27.7 59.5 2.9 24.7 Delivery Times -4.2 17.2 71.6 11.2 6.0 3.1 9.2 74.5 12.7 -3.5 Inventories -0.5 16.7 59.2 23.4 -6.7 15.7 33.0 61.5 2.6 30.5 Prices Paid 23.0 36.2 60.6 1.2 35.0 36.1 44.5 54.1 0.0 44.5 Prices Received 17 21.7 70.7 7.6 14.1 29.5 35.0 55.3 5.0 30.0 Number of Emp. 7.8 22.4 65.9 10.5 11.9 24.1 34.8 55.5 3.4 31.4 Avg. Emp. Wrkwk 2.9 19.7 65.2 12.4 7.3 8.9 23.0 62.4 6.2 16.7 Capital Ex. -- -- -- -- -- 24.4 36.3 48.8 5.3 31.0 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 data reflect information received through June 16, 2014. May 2014 Manufacturing firms responding to the May Business Outlook Survey indicated that regional manufacturing activity expanded this month. The survey’s indicators for general activity, new orders, and shipments were positive for the third consecutive month, although they fell slightly from higher readings last month. Employment continued to increase for the reporting firms. The survey’s indicators of future activity improved, suggesting that firms remain optimistic about continued growth over the next six months. Indicators Reflect Continued Growth The diffusion index of current general activity decreased slightly from a reading of 16.6 in April to 15.4 this month. The index has remained positive for three consecutive months, following the weather-influenced negative reading in February (see Chart). The new orders and current shipments indexes also remained positive but moved lower this month, decreasing 4 points and 9 points, respectively. Indicators suggest slightly improved labor market conditions this month. The employment index remained positive for the 11th consecutive month but increased only 1 point. The percentage of firms reporting increases in employment (19 percent) remained higher than the percentage reporting decreases (11 percent). The workweek index was also positive for the third consecutive month but edged 2 points lower. Some Firms Report Higher Prices The survey’s price diffusion indexes suggest that price increases were more widespread this month. The prices received index, reflecting firms’ own final goods prices, increased notably, from 4.3 to 17.0. This is the highest reading since May 2011. Although the percent of firms that reported receiving higher prices (18 percent) exceeded the percentage reporting lower prices (1 percent), 79 percent of the firms reported steady prices. The prices paid index was also higher, increasing 12 points to 23.0, but followed three consecutive months of decline in the index. Indicators of Future Growth Improve Most of the survey’s broad indicators of future growth showed improvement this month. The future general activity index increased 11 points, nearing its reading in March (see Chart). The future indexes for new orders and shipments showed parallel improvement, increasing 7 points and 6 points, respectively. The future employment index rose 8 points. The percentage of firms expecting growth in employment increased from 27 percent in April to 31 percent this month. In special questions this month, firms were asked about problems filling key positions with special labor skill requirements (see Special Questions). Firms were asked generally about worker shortages, any perceived mismatch between skill requirements and labor supply, and how they were dealing with such skills shortages. Nearly one-third of the firms reported labor shortages, while a higher percentage (46 percent) indicated a perceived skills mismatch. Nearly one-third also reported that they had positions that have remained vacant for more than 90 days. Fifty-three percent of the firms reported that the skills associated with most of their key job openings required some college/technical training; 33 percent indicated that the key positions required only high school diplomas; and only 8 percent indicated that a college degree was required. Firms were also asked to characterize the actions taken to deal with any perceived labor skills shortages. Sixty-six percent indicated increased recruitment efforts, and 56 percent were providing additional training for existing staff. Thirty-four percent of the firms reported that they had increased wages to address the skills shortage. Only a small percentage of firms (4 percent) indicated that production decreases were associated with a skills shortage. Summary The May Business Outlook Survey suggests that activity in the region’s manufacturing sector continued to expand. Firms reported continued increases in overall activity, new orders, shipments, and employment this month. Firms reported more widespread price pressures. The survey’s future activity indexes indicate that firms expect continued growth and employment increases over the next six months. Special Questions (May 2014) 1.) Has your firm experienced any significant labor shortages or mismatch between labor skill requirements and labor supply? Yes No NR Labor shortages 32.9% 62.8% 4.3% Skills mismatch 45.7% 50.0% 4.3% Job vacancies remaining more than three months 32.8% 58.6% 8.6% 2.) What skill requirements are associated with the majority of your key job openings? College+ 7.6% Some college/technical school 53.0% High school only 33.3% Less than high school 6.1% 3.) What actions has your firm taken to address skills shortages? (check as many actions as apply)* Increase recruitment efforts 65.7% Provide additional training to existing staff 55.7% Partner with educational institution to align curriculum with talent needs 38.6% Increase wages 34.3% Expand recruitment outside region 25.7% Increase recruitment incentives 17.1% Increase benefits 7.1% Decrease production 4.3% Other 4.3% *Percentage will not add to 100 percent because more than one action could be selected. Summary of Returns May 2014 May vs. April Six Months from Now vs. May Prev. Prev. Diff. Inc. No ch. Dec. Diff. Diff. Inc. No ch. Dec. Diff. Index Index Index Index General Busines 16.6 33.7 45.9 18.3 15.4 26.6 52.4 23.2 15.0 37.4 Conditions New Orders 14.8 34.8 40.9 24.3 10.5 29.7 50.3 32.5 13.8 36.5 Shipments 22.7 32.5 49.2 18.3 14.2 32.8 51.3 31.7 12.6 38.7 Unfilled Orders 2.0 18.3 59.3 20.9 -2.5 1.5 25.1 62.8 8.1 17.0 Delivery Times -14.3 7.6 78.4 11.8 -4.2 5.7 15.2 67.7 12.1 3.1 Inventories -1.5 20.9 57.8 21.4 -0.5 4.8 26.1 59.0 10.4 15.7 Prices Paid 11.3 24.7 71.3 1.7 23.0 35.1 36.5 59.0 0.4 36.1 Prices Received 4.3 18.0 78.6 1.1 17.0 13.0 33.1 59.6 3.6 29.5 Number of Emp. 6.9 19.0 67.7 11.2 7.8 15.9 30.5 55.7 6.5 24.1 Avg. Emp. Wrkwk 5.0 17.8 65.1 14.9 2.9 -0.5 23.0 54.9 14.2 8.9 Capital Ex. -- -- -- -- -- 26.0 32.5 53.4 8.1 24.4 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 data reflect information received through May 13, 2014. April 2014 Manufacturing activity in the region increased in April, according to firms responding to this month’s Business Outlook Survey. The survey’s broadest indicators for general activity, new orders, shipments, and employment all remained positive and increased from their readings in March. Price pressures remain modest. The survey's indicators of future activity reflected optimism about continued expansion over the next six months, although the indicators have fallen from higher readings in recent months. Indicators Signal Growth This Month The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased from a reading of 9.0 in March to 16.6 this month, its highest reading since last September (see Chart). The index has now increased for two consecutive months, following the weather-influenced negative reading in February. The new orders and current shipments indexes also moved higher this month, increasing 9 points and 17 points, respectively. Indicators suggest slightly improved labor market conditions this month. The employment index remained positive for the 10th consecutive month and increased 5 points, suggesting overall improvement. The percentage of firms reporting increases in employment (20 percent) edged out the percentage reporting decreases (13 percent). The workweek index was also positive for the second consecutive month, edging 2 points higher. Price Pressures Are Relatively Moderate The survey’s price diffusion indexes continue to suggest overall moderate rates of increase. The prices received index was unchanged at 4.3. Nearly 76 percent of the firms reported no change in their final goods prices, and the percentage of firms reporting increases (13 percent) was only slightly greater than the percentage reporting decreases (9 percent). The prices paid index edged slightly lower, to 11.3, its third consecutive month of decline. Seventeen percent of the firms reported higher input prices, down from 19 percent in March. Indicators for the Future Remain Positive Firms remain optimistic about the growth of overall manufacturing activity for the next six months. The future general activity index remained positive; however, the index decreased nearly 9 points from its reading in March (see Chart). Indexes for future new orders and shipments also edged lower. The future new orders index decreased 3 points, while the future shipments index decreased 8 points. Firms’ responses about future employment continued to reflect overall confidence about future conditions. The percentage of firms expecting employment growth (27 percent) was greater than the percentage expecting employment declines (11 percent). The index, however, decreased 13 points, exactly reversing a 13-point increase in March. In special questions this month, firms were asked about regional factors influencing their location decisions (see Special Questions). Firms were also asked to rank, by relevance, each factor influencing their decision to remain in the region. According to the firms’ responses, the three most reported factors influencing the decision were (1) the availability of skilled labor; (2) the cost of labor; and (3) taxes, subsidies, and regulation. About 30 percent of the firms responding indicated that the cost of energy and the proximity to customers and distribution channels were also very or most relevant. The three most reported categories above, plus the cost of energy, were also reported to have become more important than other factors in recent years (Question 2). Summary The April Business Outlook Survey suggests that activity in the region’s manufacturing sector continued on a path of growth this month. Firms reported increases in overall activity, new orders, shipments, and employment this month. Price pressures remained moderate. The survey’s future activity indexes, on balance, indicate that firms expect continued growth and employment increases over the next six months. Special Questions (April 2014)* 1. How important are the following factors in influencing your firm’s decision to remain in the three-state region? Very or Somewhat Not most relevant relevant relevant Availability of skilled labor 61.1% 29.2% 6.9% Cost of labor 50.0% 34.7% 11.1% Taxes/subsidies/regulation 41.7% 36.1% 19.4% Cost of energy 33.3% 47.2% 15.3% Proximity of customers 30.6% 29.2% 37.5% Proximity to distribution channels 29.2% 23.6% 43.1% Proximity to suppliers/raw materials 16.7% 31.9% 48.6% 2. Have the same factors become more or less important in recent years? Less Same More Diffusion Index (More-Less) Availability of skilled labor 1.4% 58.3% 33.3% 31.9% Cost of labor 0% 61.1% 31.9% 31.9% Taxes/subsidies/regulation 4.2% 62.5% 26.4% 22.2% Cost of energy 4.2% 68.1% 18.1% 13.9% Proximity to suppliers/raw materials 15.3% 75.0% 2.8% -12.5% Proximity to distribution channels 18.1% 70.8% 5.6% -12.5% Proximity of customers 19.4% 69.4% 5.6% -13.9% *Items may not add up to 100 percent because of omission by respondents. Summary of Returns April 2014 April vs. March Six Months from Now vs. April Prev. Prev. Diff. Inc. No ch. Dec. Diff. Diff. Inc. No ch. Dec. Diff. Index Index Index Index General Business 9.0 33.7 40.7 17.0 16.6 35.4 43.1 31.8 16.5 26.6 Conditions New Orders 5.7 37.4 39.1 22.6 14.8 32.2 47.1 29.6 17.3 29.7 Shipments 5.7 40.7 40.6 18.0 22.7 41.1 50.2 26.8 17.4 32.8 Unfilled Orders 2.6 19.4 61.3 17.4 2.0 -1.3 15.9 62.1 14.4 1.5 Delivery Times -2.7 6.4 71.8 20.7 -14.3 5.4 16.3 64.3 10.6 5.7 Inventories -6.8 22.7 52.0 24.2 -1.5 12.2 21.8 51.6 17.0 4.8 Prices Paid 13.9 17.2 74.5 5.9 11.3 29.4 41.9 47.1 6.8 35.1 Prices Received 4.3 13.0 75.8 8.7 4.3 15.9 19.8 65.0 6.8 13.0 Number of Emp. 1.7 19.8 67.1 12.9 6.9 29.1 26.9 58.8 11.0 15.9 Avg. Emp. Wrkwk 3.1 17.9 68.5 12.9 5.0 -0.3 13.8 68.4 14.3 -0.5 Capital Ex. -- -- -- -- -- 31.3 29.5 56.9 3.4 26.0 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 data reflect information received through April 15, 2014. March 2014 Manufacturing activity rebounded in March, according to firms responding to this month’s Business Outlook Survey. The survey’s broadest indicators for general activity, new orders, and shipments increased and recorded positive readings this month, suggesting a return to growth following weather-related weakness in February. Firms’ employment levels were reported near steady, but responses reflected optimism about adding to payrolls over the next six months. The survey's indicators of future activity reflected optimism about continued growth over the next six months. Indicators Suggest Activity Rebounded This Month The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased from a reading of -6.3 in February to 9.0 this month, nearing its reading in January (see Chart). The current shipments and new orders indexes also returned to positive readings this month. The demand for manufactured goods, as measured by the current new orders index, increased from -5.2 to 5.7 this month. Shipments also increased, with its index rising 16 points to a reading of 5.7. Firms reported, on balance, shorter delivery times and an increase in unfilled orders this month. Lower inventories were also reported in March. Indicators suggest stable labor market conditions this month. The employment index remained positive for the ninth consecutive month but edged 3 points lower, suggesting near-steady employment: The percentage of firms reporting increases in employment (17 percent) edged out the percentage reporting decreases (15 percent). The workweek index was slightly positive this month, following negative readings over the previous two months. The survey’s price diffusion indexes fell slightly this month, suggesting moderate price pressures. The prices received index decreased 3 points, to 4.3. Thirteen percent of the firms reported increases for their own products, while 9 percent reported price reductions. The largest percentage (77 percent) indicated that their firms’ prices were steady this month. The prices paid index edged slightly lower, to 13.9. Nineteen percent of the firms reported higher input prices, down from 24 percent in February. Expectations for Growth Remain Optimistic Firms remain optimistic about the growth of overall manufacturing activity for the next six months. The future general activity index remained at a relatively high reading; however, the index decreased 5 points from its reading in February (see Chart). Indexes for future new orders and shipments moved in opposite directions but remained at high readings. The future new orders index decreased 3 points, while the future shipments index increased 5 points. The future employment index continues to reflect confidence about future conditions: The index increased 13 points this month, marking its highest reading since last September. The percentage of firms expecting employment growth increased from 27 percent in February to 34 percent this month. In special questions this month, firms were asked about their expectations for capital spending for 2014 compared with 2013 (see Special Questions). Nearly 49 percent of the firms indicated that total capital spending would increase this year compared with 2013; 21 percent indicated that spending would decrease. Expected high sales growth and the need to replace equipment were the most cited reasons for the increase. Among the firms that did not plan to increase capital spending, the most cited reasons were low sales growth, low capacity utilization, and a limited need to replace capital and technology equipment. Summary The March Business Outlook Survey suggests that activity in the region’s manufacturing sector rebounded following a month of decline in February. Firms reported increases in overall activity, new orders, and shipments this month. Price pressures remained moderate. The survey’s future activity indexes indicate that firms expect continued growth and employment increases over the next six months. Special Questions (March 2014) 1. Do you expect the following capital spending categories in 2014 to be higher than, lower than, or the same as last year? Higher Lower Same Diffusion Index (Higher-Lower) Total Capital Spending 48.6% 21.4% 24.3% 27.2% Noncomputer equipment 37.1% 20.0% 40.0% 17.1% Software 34.3% 20.0% 42.9% 14.3% Computer and related hardware 28.6% 15.7% 52.9% 12.9% Energy saving investments 12.9% 10.0% 71.4% 2.9% Structures 24.3% 18.6% 54.3% 5.7% 2. If your firm plans to increase total capital spending, what are the major factors behind your plan to increase capital spending?* Expected growth of sales is high 50.0% Need to replace other capital goods 47.1% Need to replace information technology equipment 41.2% Capacity utilization is currently high 38.2% Firm’s cash flow or balance-sheet position has improved 14.7% 3. If your firm does not plan to increase total capital spending, what are the major factors behind your plan not to increase capital spending? * Expected growth of sales is low 53.8% Capacity utilization is currently low 53.8% Limited need to replace other capital goods 53.8% Limited need to replace information technology equipment 42.3% Firm’s cash flow or balance-sheet position has deteriorated 11.5% * The sum of percentages may be greater than 100 due to firms indicating more than one factor if applicable. Shown are the top five factors cited. Summary of Returns March 2014 March vs. February Six Months from Now vs. March Prev. Prev. Diff. Inc. No ch. Dec. Diff. Diff. Inc. No ch. Dec. Diff. Index Index Index Index General Busines -6.3 33.2 41.8 24.2 9.0 40.2 52.2 29.9 16.8 35.4 Conditions New Orders -5.2 31.8 42.2 26.0 5.7 35.4 49.8 29.5 17.6 32.2 Shipments -9.9 32.4 40.8 26.7 5.7 36.0 57.3 26.4 16.3 41.1 Unfilled Orders -2.6 17.0 66.2 14.3 2.6 6.7 15.8 62.1 17.0 -1.3 Delivery Times 2.9 14.9 65.3 17.6 -2.7 -0.3 19.7 59.5 14.3 5.4 Inventories 3.6 19.4 51.9 26.3 -6.8 4.6 27.2 51.7 15.0 12.2 Prices Paid 14.2 19.0 75.0 5.1 13.9 18.2 33.4 60.0 4.0 29.4 Prices Received 7.6 13.0 77.2 8.7 4.3 16.3 23.5 61.6 7.6 15.9 Number of Emp. 4.8 16.7 66.3 15.0 1.7 16.5 34.3 58.0 5.2 29.1 Avg. Emp. Wrkwk -7.0 22.0 54.5 19.0 3.1 1.1 15.5 60.6 15.8 -0.3 Capital Ex. -- -- -- -- -- 19.9 36.9 50.6 5.6 31.3 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 data reflect information received through March 18, 2014. February 2014 Manufacturing activity was reduced in February, according to firms responding to this month’s Business Outlook Survey. The survey’s broadest indicators for general activity, new orders, and shipments suggest moderate declines this month, but comments suggested that much of the weakness was attributable to the severe winter weather that affected the region during the survey period. Firms continued to add to their payrolls, but average work hours fell. Despite the weakness in current indicators, many of the survey's indicators of future activity improved this month, reflecting optimism about continued growth over the next six months. Indicators Suggest Reduced Activity This Month The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, decreased from a reading of 9.4 in January to -6.3 this month (see Chart). This was the first negative reading of the index in nine months. The current shipments and new orders indexes also weakened this month. The demand for manufactured goods, as measured by the current new orders index, decreased from a reading of 5.1 to -5.2 this month. Shipments also fell, with its index falling 22 points to a reading of -9.9. Firms reported longer delivery times and an increase in inventories. Labor market indicators were mixed this month. The current employment index remained positive for the eighth consecutive month but declined 5 points from January. More firms (21 percent) reported increases in employment than reported decreases (16 percent). Firms reported reduced work hours; however, the average workweek index remained negative for the second consecutive month, with more than one-fifth of the firms reducing work hours. Cost increases were slightly less widespread this month among reporting firms: The prices paid index decreased 5 points, to 14.2. But with respect to firms’ own manufactured goods, price increases were slightly more widespread this month: The prices received index increased 3 points, to 7.6. First Quarter Production Will Increase Modestly In supplemental questions this month, firms were asked about the state of underlying demand for their manufactured goods (excluding seasonal effects) since the beginning of the year (see Special Questions). Over 45 percent of the firms characterized the demand as increasing, while 19 percent indicated it was decreasing. The largest percentage (43 percent) indicated that demand had increased modestly. Firms were also asked to provide estimates of production growth for the first quarter. Significantly more firms indicated that production would increase in the first quarter (55 percent) than indicated it would decrease (28 percent), and the average growth for the reporting firms was 0.5 percent. Over half of the firms indicated that production growth would represent an acceleration compared with the fourth quarter. Firms also remain optimistic about the growth of overall manufacturing activity for the next six months. This month, the future general activity index increased 6 points, from a relatively high reading of 34.4 in January, to 40.2 (see Chart). Indexes for future new orders and shipments also remained at relatively high levels, with nearly half of the firms expecting increases in both over the next six months. The future employment index was virtually unchanged at 16.5, with nearly 27 percent of the firms expecting increased employment over the next six months. Summary The February Business Outlook Survey suggests that activity in the region’s manufacturing sector decreased moderately this month, which was mostly attributable to the winter storms that blanketed much of the region during the first few weeks of the month. Firms reported decreases in overall activity, new orders, shipments, and average work hours in February. But overall, employment among the firms continued to increase, and firms expect production to rise modestly during the first quarter. The survey’s future activity indexes indicate that firms expect continued growth over the next six months. Special Questions (February 2014) 1. Since the beginning of the year, how would you characterize the underlying demand for your manufactured products? Exclude any purely seasonal effect. Increase significantly 2.7% Increase modestly 42.7% Increase subtotal 45.4% No change 34.7% Decrease modestly 13.3% Decrease significantly 5.4% Decrease subtotal 18.7% 2. What change, if any, do you anticipate in your firm’s production during the first quarter of 2014 compared with the fourth quarter of last year? Increase of more than 4% 14.6% Increase of 2-4% 18.7% Increase of less than 2% 21.4% Increase subtotal 54.7% No change 14.7% Decrease of less than 2% 4.1% Decrease of 2-4% 9.3% Decrease of more than 4% 14.6% Decrease subtotal 28.0% Average expected growth for all firms: 0.5% Average expected growth for firms attributing growth to seasonal factors*: -0.2% 3. Would this represent an acceleration or deceleration from the fourth quarter? Significant acceleration 12.0% Some acceleration 41.3% Acceleration subtotal 53.3% No change 14.7% Some deceleration 25.3% Significant deceleration 4.0% Deceleration subtotal 29.3% *Calculation based on responses to separate question about whether expected change was due to seasonal factors, change in business conditions, or other factors. Percentages may not add up to 100 percent because not all firms answered all questions. February 2014 February vs. January Six Months from Now vs. February Prev. Prev. Diff. Inc. No ch. Dec. Diff. Diff. Inc. No ch. Dec. Diff. Index Index Index Index General Business 9.4 25.1 42.9 31.4 -6.3 34.4 51.3 34.3 11.1 40.2 Conditions New Orders 5.1 23.9 46.9 29.1 -5.2 38.4 47.5 36.4 12.1 35.4 Shipments 12.1 25.6 37.5 35.5 -9.9 33.2 49.8 33.2 13.7 36.0 Unfilled Orders -1.0 19.7 54.9 22.3 -2.6 11.3 19.2 65.5 12.6 6.7 Delivery Times -2.8 16.3 67.6 13.4 2.9 -10.6 12.5 72.8 12.8 -0.3 Inventories -19.6 20.0 54.7 16.5 3.6 -0.2 26.4 48.6 21.7 4.6 Prices Paid 18.7 24.3 65.5 10.1 14.2 35.3 25.7 59.2 7.5 18.2 Prices Received 5.1 12.8 78.7 5.2 7.6 11.8 22.7 69.3 6.4 16.3 Number of Emp. 10.0 21.1 56.9 16.3 4.8 17.5 26.5 60.2 10.0 16.5 Avg. Emp. Wrkwk -5.3 14.7 55.4 21.7 -7.0 5.5 24.3 49.8 23.2 1.1 Capital Ex. -- -- -- -- -- 15.1 27.5 62.8 7.6 19.9 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 data reflect information received through February 18, 2014. January 2014 Manufacturing growth in the region continued in January, according to firms responding to this month’s Business Outlook Survey. The survey’s broadest indicators for general activity, new orders, shipments, and employment were positive, signifying continued moderate growth. The survey's indicators of future activity moderated but continue to suggest general optimism about growth over the next six months. Indicators Suggest Continued Moderate Growth The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased from a revised reading of 6.4 in December to 9.4 this month (see Chart).* The index has now been positive for eight consecutive months. The current shipments and new orders indexes remained positive but moved in opposite directions compared with December. The demand for manufactured goods, as measured by the current new orders index, decreased from a revised reading of 12.9 to 5.1 this month. Shipments continued to expand, and its index edged slightly higher to a reading of 12.1. Labor market indicators showed some improvement this month. The current employment index increased 6 points from its revised reading in December. Twenty-three percent of the firms reported increases in employment in January, which is slightly higher than the 18 percent that reported increased employment last month. Firms reported reduced work hours, with the average workweek index falling from 4.8 to -5.3. Cost pressures were slightly more widespread this month among reporting firms: The prices paid index increased 2 points, to 18.7. But with respect to firms’ own manufactured goods, price increases were less widespread this month: The prices received index decreased 6 points, to 5.1. Six-Month Indicators Moderate The survey’s future indicators have recently shown moderating optimism about growth in manufacturing. This month, the future general activity index fell 10 points, from a revised reading of 44.8 in December to 34.4 this month (see Chart). Still, nearly 48 percent of the firms expect increases in activity over the next six months; 13 percent of the firms indicated that they expect decreases. The indexes for future new orders and shipments also remained at relatively high levels but fell 7 points and 9 points, respectively. The future employment index was virtually unchanged at 17.5, with nearly 25 percent of the firms expecting to increase employment over the next six months. In this month’s special questions, firms were asked about the factors that are influencing their hiring plans over a longer horizon of 12 months (see Special Questions). The percentage of firms that indicated they expect employment growth over the next year (41 percent) exceeded the percentage expecting decreased employment growth (10 percent) by a significant margin. Nearly all firms responded to a question about the factors that were restraining hiring. The most frequently cited factors restraining hiring were the need to keep operating costs low and low expectations for sales growth. Expected slow sales growth was the most frequently cited “most important” factor restraining hiring. Difficulty finding workers with appropriate skills and uncertainty about the cost of health-care insurance also ranked high. Summary The January Business Outlook Survey suggests that activity in the region’s manufacturing sector increased moderately this month. Firms reported increases in overall activity, new orders, and employment in January. Price increases for firms’ own manufactured goods were less widespread this month. The survey’s future activity indexes suggest that firms expect growth over the first half of 2014. * The survey’s annual historical revisions, which incorporate new seasonal adjustment factors, were released on January 9, 2014. The full set of revised historical data is available at: http://www.philadelphiafed.org/research-and-data/regional-economy/business-outlo ok-survey/historical-data/revisions/historical-revisions-2014.cfm. Special Questions (January 2014) 1. Do you expect your firm to increase employment, leave unchanged, or decrease employment over the next 12 months? Increase 41.1% Unchanged 45.2% Decrease 9.6% NR 4.1% Total 100.0% 2. What are the most important factors, if any, restraining your hiring plans? Factor Most Second Third Important Most Important Most Important Firm wants to keep operating costs low 11.1% 29.2% 11.1% Expected growth of sales is low 30.6% 5.6% 5.6% Cannot find workers with required skills 20.8% 6.9% 9.7% There is uncertainty about the cost of health insurance 4.2% 16.7% 6.9% There are no sources of restraint 12.5% 2.8% 5.6% There is uncertainty about other regulations or government policies 1.4% 2.8% 13.9% Current staff is underutilized/working reduced hours 1.4% 5.6% 4.2% Labor costs are high 5.6% 1.4% 4.2% Financial position has deteriorated 0.0% 4.2% 5.6% Other 2.8% 1.4% 1.4% Summary of Returns January 2014 January vs December Six Months from Now vs. January Prev. Prev. Diff. Inc. No ch. Dec. Diff. Diff. Inc. No ch. Dec. Diff. Index Index Index Index General Busines 6.4 26.9 54.8 17.5 9.4 44.8 47.6 27.0 13.2 34.4 Conditions New Orders 12.9 26.9 50.5 21.8 5.1 45.7 51.1 28.8 12.7 38.4 Shipments 11.9 32.7 42.1 20.6 12.1 42.0 48.9 29.1 15.6 33.2 Unfilled Orders -6.6 14.9 66.1 15.9 -1.0 11.9 20.9 58.0 9.6 11.3 Delivery Times -8.0 7.8 72.0 10.6 -2.8 2.2 5.2 67.2 15.8 -10.6 Inventories 16.0 9.5 61.4 29.1 -19.6 0.6 19.9 48.8 20.2 -0.2 Prices Paid 16.4 24.8 67.9 6.0 18.7 39.1 39.2 48.2 3.9 35.3 Prices Received 10.8 13.5 78.1 8.4 5.1 34.8 21.3 61.9 9.5 11.8 Number of Emp. 4.4 23.1 62.1 13.1 10.0 18.2 24.5 60.0 7.0 17.5 Avg. Emp. Wrkwk 4.8 17.9 58.8 23.3 -5.3 9.5 19.9 56.0 14.4 5.5 Capital Ex. -- -- -- -- -- 12.8 24.0 54.9 8.9 15.1 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 data reflect information received through January 14, 2014.