December 2018 Manufacturing activity in the region continued to grow but remained subdued, according to results from the December Manufacturing Business Outlook Survey. The survey’s broad indicators were positive, but their movements were mixed this month: The general activity and shipments indicators fell from their readings last month, while the indicators for new orders and employment increased. The firms remained generally optimistic about future growth. Current Indicators Remained Muted The diffusion index for current general activity decreased from 12.9 in November to 9.4 this month, its lowest reading since August 2016. Over 26 percent of the manufacturers reported increases in overall activity this month, while 17 percent reported decreases. The new orders index increased 5 points to 14.5 but remains notably lower than its average reading for the year. The current shipments index decreased 12 points to 10.0, its lowest reading in 27 months. Both the unfilled orders and delivery times indexes were positive this month, suggesting higher unfilled orders and slower delivery times. The firms continued to report overall higher employment. Over 24 percent of the responding firms reported increases in employment this month, while 6 percent of the firms reported decreases in employment. The current employment index remained positive and edged 2 points higher to 18.3. The current workweek index fell 6 points to 0.5, its lowest reading in 26 months. Price Indexes Stay Positive but Lower Than at Midyear The survey’s diffusion indexes for prices remained positive, suggesting continued increases in firms’ input prices and the prices for their own manufactured goods. On the cost side, 42 percent of the firms reported increases in the prices paid for inputs. The prices paid index edged down 1 point and remains 25 points below its peak in July. The prices received index increased 4 points to 26.2, its highest reading in four months, but 10 points below its peak in May. Six-Month Indicators Remain Positive The diffusion index for future general activity increased 5 points to a reading of 31.7 this month. Over 43 percent of the firms expect increases in activity over the next six months, while 12 percent expect declines. The future new orders and shipments indexes, however, decreased 5 points and 3 points, respectively. The future employment index edged up 2 points, with 38 percent of the firms indicating that they expect to add workers over the next six months. Firms Expect Highest Cost Increases for Health Benefits In this month’s special questions, the firms were asked about their expectations for changes in various input and labor costs for the coming year. Wages are expected to increase by an average of 2.8 percent, while health benefits are expected to rise 4.5 percent, and nonhealth benefits are expected to rise 1.9 percent. The costs of raw materials and intermediate goods are expected to increase next year by an average of 3.2 percent and 2.4 percent, respectively. Energy prices are expected to increase only 0.4 percent. Summary The firms’ responses indicated continued growth in the region’s manufacturing sector this month. The survey’s broad current indicators remained positive and at relatively low levels. The firms continued to report increases in overall employment, however, with plans for further increases over the next six months. The survey’s future indexes indicate that respondents continue to expect growth over the next six months. Special Questions (December 2018) What percentage change in costs do you expect for the following categories in 2019? Energy Other Inter- Wages Health Non- Wages + (%) Raw mediate (%) Benefits health Health Materials goods (%) Benefits Benefits + (%) (%) (%) Nonhealth Benefits (%) Decline of more than 4% 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Decline of 3-4% 3.4 0.0 0.0 0.0 0.0 0.0 0.0 Decline of 2-3% 8.5 0.0 0.0 0.0 0.0 0.0 0.0 Decline of 1-2% 11.9 1.7 1.8 0.0 3.3 0.0 0.0 No Change 33.9 10.0 10.5 1.7 13.3 27.6 3.4 Increase of 1-2% 25.4 21.7 29.8 10.0 8.3 20.7 11.9 Increase of 2-3% 11.9 28.3 26.3 50.0 13.3 29.3 23.7 Increase of 3-4% 1.7 18.3 21.1 35.0 10.0 13.8 28.8 Increase of 4-5% 3.4 6.7 8.8 3.3 21.7 6.9 13.6 Increase of 5-7.5% 0.0 6.7 0.0 0.0 13.3 1.7 11.9 Increase of more than 7.5% 0.0 6.7 1.8 0.0 16.7 0.0 6.8 Median Exp.Change 0.0 2.5 2.5 2.5 4.5 1.5 3.5 Average Exp.Change 0.4 3.2 2.4 2.8 4.5 1.9 4.0 *Firms responded to more detailed changes than shown in the provided ranges. December 2018 December vs. November Six Months from Now vs. December Prev. Prev. Diff. Inc. No ch. Dec. Diff. Diff. Inc. No ch. Dec. Diff. Index Index Index Index General Business 12.9 26.4 56.6 17.0 9.4 27.2 43.4 35.9 11.7 31.7 Conditions New Orders 9.1 34.6 44.7 20.1 14.5 46.5 52.8 29.6 11.6 41.2 Shipments 21.6 29.5 51.0 19.5 10.0 38.9 49.0 28.5 13.4 35.6 Unfilled Orders -4.8 25.1 59.4 15.4 9.7 13.1 22.2 59.0 10.4 11.8 Delivery Times 5.0 15.1 76.6 8.3 6.7 2.5 10.7 76.5 8.0 2.7 Inventories 9.5 14.5 68.4 14.7 -0.2 10.0 20.1 54.1 18.9 1.3 Prices Paid 39.3 42.4 53.2 4.4 38.0 59.5 60.7 35.9 0.5 60.2 Prices Received 21.9 27.2 70.4 1.0 26.2 58.6 45.3 50.6 0.3 45.0 Number of Emp. 16.3 24.3 69.7 6.0 18.3 32.5 37.5 58.3 2.8 34.7 Avg. Emp. Wrkwk. 6.3 13.7 71.0 13.2 0.5 19.5 17.9 72.1 7.6 10.3 Capital Ex. -- -- -- -- -- 36.1 40.8 46.6 5.1 35.7 Notes: (1) Diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. (2) All data are seasonally adjusted. (3) Percentages may not sum to 100 percent because of rounding, omission by respondents, or both. (4) Survey results reflect data received through December 17, 2018. Federal Reserve Bank of Philadelphia Manufacturing Business Outlook Survey Released: December 20, 2018, at 8:30 a.m. ET. November 2018 Growth in manufacturing activity slowed in November, according to results from this month’s Manufacturing Business Outlook Survey. The survey’s broad indicators for general activity, new orders, shipments, employment, and work hours remained positive but fell from their readings last month. The firms remained generally optimistic about future growth. Current Indicators Are Positive but Weaken The diffusion index for current general activity decreased from 22.2 in October to 12.9 in November, its lowest reading since August. Nearly 35 percent of the manufacturers reported increases in overall activity this month, while 22 percent reported decreases. The new orders index decreased 10 points to 9.1, while the current shipments index decreased 3 points to 21.6. The firms reported an overall increase in inventories during November: After two months of negative readings, the inventories index increased 10 points to 9.5. The firms continued to report overall higher employment. Almost 25 percent of the responding firms reported increases in employment this month, while 8 percent of the firms reported decreases in employment. The current employment index remained positive but declined 3 points to 16.3. The current workweek index fell nearly 15 points to 6.3, its lowest reading in two years. Price Indexes Stay Positive but Lower Than Earlier in 2018 The survey’s diffusion indexes for prices remained positive but lower than their readings for most of this year. With respect to prices received for firms’ own manufactured goods, 24 percent of the firms reported higher prices compared with 2 percent that reported decreases. The prices received index decreased 2 points. On the cost side, 41 percent of the firms reported increases in the prices paid for inputs. The prices paid index edged up 1 point but remains 24 points lower than its peak in July. Six-Month Indicators Remain Positive The diffusion index for future general activity declined from a reading of 33.8 in October to 27.2 this month. Over 42 percent of the firms expect increases in activity over the next six months, while 15 percent expect declines. The future new orders and shipments indexes, however, increased 3 points and 2 points, respectively. The future employment index also increased 2 points, with 40 percent of the firms indicating that they expect to add workers over the next six months. Firms Expect Their Price Increases to Match Rate of Inflation In this month’s special questions, the firms were asked to forecast the changes in the prices of their own products and for U.S. consumers over the next four quarters. Regarding their own prices, the firms’ median forecast was for an increase of 3.0 percent, unchanged from when the same question was last asked in August. The firms expect their employee compensation costs (wages plus benefits on a per employee basis) to rise 3.0 percent over the next four quarters, the same as the previous forecast. When asked about the rate of inflation for U.S. consumers over the next year, the firms’ median forecast was 3.0 percent, unchanged from the previous survey. The firms’ median forecast for the long-run (10-year average) inflation rate also remained at 3.0 percent. Summary The firms’ responses indicated slower growth in regional manufacturing in November. The survey’s broad current indicators remained positive, and firms continued to report increases in overall employment. The survey’s future indexes indicate that respondents continue to expect growth over the next six months. Special Questions (November 2018) Over the next year (2018:Q4 to 2019:Q4), please list your expected annual percent change with respect to the following: Current Previous Forecast Forecast (August 2018) 1. For your firm: Prices your firm will receive (for its own goods and services sold). 3.0 3.0 Compensation your firm will pay per employee (for wages and benefits). 3.0 3.0 2. For your employees: Prices your employees will pay (for goods and services where they live). 2.5 3.0 3. For U.S. consumers: Prices U.S. consumers will pay (for goods and services). 3.0 3.0 For the next 10 years (2018 through 2027), what is your expected annual average percent change with respect to the following: 4. For U.S. consumers: Prices U.S. consumers will pay (for goods and services). 3.0 3.0 The numbers represent medians of the individual forecasts (as percent changes). The forecasts are over the next year for questions 1 to 3 and an annual average for the next 10 years for question 4. Summary of Returns November 2018 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 Business 22.2 34.5 43.7 21.6 12.9 33.8 42.4 33.6 15.2 27.2 Conditions New Orders 19.3 32.3 44.0 23.2 9.1 43.4 57.5 29.3 11.0 46.5 Shipments 24.5 39.3 42.4 17.6 21.6 36.9 50.2 37.5 11.3 38.9 Unfilled Orders -2.3 13.1 69.0 17.9 -4.8 3.4 24.4 63.3 11.4 13.1 Delivery Times 0.2 13.9 77.1 8.9 5.0 -4.9 13.6 70.0 11.2 2.5 Inventories -0.8 23.0 60.6 13.5 9.5 12.4 26.0 53.2 16.0 10.0 Prices Paid 38.2 41.4 56.1 2.1 39.3 54.1 60.2 32.4 0.8 59.5 Prices Received 24.1 23.8 70.2 1.9 21.9 51.1 58.6 38.3 0.0 58.6 Number of Emp. 19.5 24.7 67.0 8.4 16.3 30.2 40.0 49.3 7.5 32.5 Avg. Emp. Wrkwk. 20.8 20.0 64.6 13.7 6.3 17.6 28.4 58.7 8.9 19.5 Capital Ex. -- -- -- -- -- 25.2 43.2 45.3 7.1 36.1 Notes: (1) Diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. (2) All data are seasonally adjusted. (3) Percentages may not sum to 100 percent because of rounding, omission by respondents, or both. (4) Survey results reflect data received through November 13, 2018. Federal Reserve Bank of Philadelphia Manufacturing Business Outlook Survey Released: November 15, 2018, at 8:30 a.m. ET. October 2018 Regional manufacturing activity continued to grow in October, according to results from this month’s Manufacturing Business Outlook Survey. The survey’s broad indicators for general activity, new orders, shipments, and employment remained positive and near their readings in September. The firms reported continued growth in employment and an increase in the average workweek this month. Expectations for the next six months remained optimistic. Survey Indexes Suggest Steady Growth The diffusion index for current general activity edged down slightly, from 22.9 in September to 22.2 this month. Nearly 36 percent of the manufacturers reported increases in overall activity this month, while 14 percent reported decreases. The new orders index decreased 2 points to 19.3, while the current shipments index increased 5 points to 24.5. The firms reported nearly no change in levels of inventories during October, as well as unfilled orders and delivery times (all of the indexes were near zero). The firms continued to report overall higher employment. More than 30 percent of the responding firms reported increases in employment this month, while 11 percent of the firms reported decreases in employment. The current employment index increased 2 points to 19.5. The firms also reported a longer workweek this month, as the workweek index increased from 14.6 to 20.8 Price Diffusion Indexes Less Than Earlier in the Year The survey’s diffusion indexes for prices remained positive but lower than their readings for most of this year. On the cost side, 42 percent of the firms reported increases in the prices paid for inputs, and the prices paid index, which had fallen 15 points last month, decreased 1 point to 38.2. With respect to prices received for firms’ own manufactured goods, 27 percent of the firms reported higher prices compared with 3 percent that reported decreases. The prices received index increased 5 points. Six-Month Indicators Remain Positive The diffusion index for future general activity edged down from a reading of 36.3 in September to 33.8 this month. Nearly 48 percent of the firms expect increases in activity over the next six months, while 14 percent expect declines. The future new orders and shipments indexes, however, increased 9 points and 1 point, respectively. The future employment index declined 2 points, but nearly 42 percent of the firms expect to add workers over the next six months. Total Capital Spending Expected to Increase Next Year For this month’s special questions, manufacturers were asked about current capacity utilization rates compared with the same time last year. The average capacity utilization rate reported among the responding firms was 79 percent, up by 1 percentage point from what was estimated for one year earlier. The firms were asked to forecast total capital spending for 2019 compared with levels in 2018, and more firms indicated that they would increase spending (41 percent) than decrease spending (14 percent). The firms were also asked about their plans for different categories of capital spending next year. For three categories of investment spending (software, computer and related hardware, and noncomputer equipment), the share of firms expecting to increase spending was higher than the share of firms expecting to decrease spending. Only the energy-saving investment and structure categories had more firms expecting decreases. The firms were also asked about the impact of tax reform and tariffs on their plans. On balance, the firms indicated net positive effects from the tax policy and modestly net negative effects from tariffs. Summary Manufacturing firms reported continued growth in regional manufacturing in October. The survey’s broad current indicators remained at high readings and were near their readings last month. Looking ahead six months, the firms remain optimistic, and the survey’s future indicators remained at relatively high levels. On balance, the firms also expect higher capital spending next year. Special Questions (October 2018) 1. Which of the following best characterizes your plant’s current capacity utilization rate (current and last year)? Current Same Time Last Year Capacity Utilization Rate* (% of reporters) (% of reporters) Less than 60% 8.0 6.0 60%–70% 18.0 12.0 70%–80% 18.0 40.1 80%–90% 40.0 36.0 Greater than 90% 16.1 6.0 Average utilization rate 78.8 77.7 U.S. utilization rate** 76.5 75.6 2. Do you expect the following capital expenditure categories over the next year (2019) to be higher than, the same, or lower than in the current year? Percent of Reporters ------------------------- Diffusion Higher Same Lower Index Total 40.9 45.5 13.6 27.3 Noncomputer equipment 37.5 42.6 20.8 16.7 Computer and related hardware 30.4 51.1 17.4 13.0 Software 31.9 48.9 19.1 12.8 Structure 17.0 53.2 26.7 -9.6 Energy-saving investments 2.3 76.6 15.9 -13.6 3. How have each of the two factors, tax relief and trade policy (including tariffs), affected your expected capital spending for 2019 compared with 2018? Tax Relief Tariff Increases/ Trade Policy Significantly increase 17.0 3.8 Modestly increase 22.6 9.4 Not change 60.4 64.2 Modestly decrease 0.0 15.1 Significantly decrease 0.0 3.8 No response 0.0 3.9 *The firms provided more specific rates of utilization than shown in the provided ranges. **Capacity Utilization: U.S. Manufacturing (NAICS) “Current” shows the rate for September 2018; “Same Time Last Year” shows the rate for October 2017. Sources: Federal Reserve Board, Haver Analytics Summary of Returns October 2018 October vs. September Six Months from Now vs. October Prev. Prev. Diff. Inc. No ch. Dec. Diff. Diff. Inc. No ch. Dec. Diff. Index Index Index Index General Business 22.9 35.9 48.6 13.7 22.2 36.3 47.7 33.7 13.9 33.8 Conditions New Orders 21.4 34.6 49.2 15.4 19.3 34.7 54.4 32.6 11.0 43.4 Shipments 19.6 36.4 50.5 11.9 24.5 35.5 47.5 36.8 10.6 36.9 Unfilled Orders 12.6 11.0 73.8 13.3 -2.3 10.5 21.5 55.9 18.1 3.4 Delivery Times 11.1 12.5 75.2 12.3 0.2 5.2 8.2 74.3 13.1 -4.9 Inventories -3.5 17.0 62.7 17.8 -0.8 0.4 24.2 57.8 11.8 12.4 Prices Paid 39.6 42.0 47.5 3.8 38.2 49.6 57.7 35.3 3.7 54.1 Prices Received 19.6 26.7 66.9 2.6 24.1 44.2 56.3 34.2 5.2 51.1 Number of Emp. 17.6 30.1 58.3 10.6 19.5 31.7 41.7 43.2 11.5 30.2 Avg. Emp. Wrkwk. 14.6 28.7 61.7 7.9 20.8 10.8 25.8 61.0 8.2 17.6 Capital Ex. -- -- -- -- -- 26.7 32.8 53.3 7.7 25.2 Notes: (1) Diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. (2) All data are seasonally adjusted. (3) Percentages may not sum to 100 percent because of rounding, omission by respondents, or both. (4) Survey results reflect data received through October 16, 2018. Federal Reserve Bank of Philadelphia Manufacturing Business Outlook Survey Released: October 18, 2018, at 8:30 a.m. ET. September 2018 Regional manufacturing activity continued to grow in September, according to results from this month’s Manufacturing Business Outlook Survey. The survey’s broad indicators for general activity, new orders, shipments, and employment remained positive and increased from their readings in August. The survey’s respondents reported diminished price pressures this month. Expectations for the next six months remained optimistic, but most broad future indicators showed some moderation. Current Indicators Show Improvement The diffusion index for current general activity increased 11 points this month to 22.9, returning the index to near its average reading for 2018. Over 38 percent of the manufacturers reported increases in overall activity this month, while 15 percent reported decreases. The new orders index increased 12 points to 21.4. This month, 42 percent of the firms reported an increase in new orders, up from 34 percent in August. The current shipments index also improved, increasing 3 points to 19.6. The current inventories index fell 19 points this month and recorded its first negative reading in seven months. The firms, on balance, reported an increase in unfilled orders and longer delivery times. The firms continued to report overall higher employment. Over 26 percent of the responding firms reported increases in employment this month, up from 18 percent last month, while nearly 9 percent of the firms reported decreases in employment. The current employment index increased 3 points to 17.6. Upward Price Pressures Diminish The survey’s diffusion indexes for prices remained positive but decreased from their readings in August. On the cost side, 44 percent of the firms reported increases in the prices paid for inputs, down from 63 percent in August, and the prices paid index decreased 15 points to 39.6. With respect to prices received for firms’ own manufactured goods, 25 percent of the firms reported higher prices compared with 35 percent last month. The prices received index decreased 14 points. Six-Month Indicators Moderate Slightly The diffusion index for future general activity edged down from a reading of 38.8 in August to 36.3 this month. Nearly 53 percent of the firms expect increases in activity over the next six months, while 16 percent expect declines. The future new orders and shipments indexes decreased 3 points and 7 points, respectively. The future prices paid and received indexes decreased 11 points and 15 points, respectively. Nearly 55 percent of the firms expect price increases for purchased inputs over the next six months. Over 48 percent expect higher prices for their own manufactured goods, down from 62 percent last month. The future employment index was little changed from last month at 31.7, with almost 38 percent of the firms expecting to add workers over the next six months. Most Firms Expect Higher Production During the Fourth Quarter In this month’s special questions, the firms were asked to estimate their total production growth for the third quarter ending this month along with expected growth for the fourth quarter. The share of firms reporting increases in third-quarter production (56 percent) was greater than the share reporting decreases (36 percent). Looking ahead to the fourth quarter, 50 percent of the firms expect an increase in production compared with the third quarter, while 27 percent of the firms expect decreases. For those firms forecasting an increase in production, 24 percent of the firms will need to hire additional workers; 24 percent will increase production through higher productivity without hiring additional workers; and 22 percent will increase work hours without hiring additional workers. Summary Responses to the Manufacturing Business Outlook Survey indicated continued growth for the region’s manufacturing sector in September. The survey’s broad current indicators increased from their readings last month. Looking ahead six months, the firms remain optimistic, although most future indicators moderated somewhat from their readings in August. Special Questions (September 2018) 1. How will your firm’s total production for the third quarter compare with that of the second quarter? Change attributable to (%): ______________________________________________ % of firms* Seasonal Business No factors conditions Other response Increase 56.3 18.8 31.3 1.6 4.7 No change 6.3 0.0 1.6 0.0 4.7 Decrease 35.9 14.1 17.2 4.7 0.0 2. For the upcoming fourth quarter, how much growth do you expect at your plant compared with the third quarter? % of firms* Significant increase 0.0 Some increase 21.9 Slight increase 28.1 Subtotal (% expecting an increase) 50.0 No change 18.8 Slight decrease 9.4 Some decrease 12.5 Significant decrease 4.7 Subtotal (% expecting a decrease) 26.6 3. If you expect to increase production in the fourth quarter, this will be accomplished by: % of firms* Hiring additional workers 24.3 Increasing work hours of current staff, without hiring additional workers 21.6 Increasing productivity of current staff, without hiring additional workers 24.3 Other 13.5 *Subtotals may not sum to 100 because of incomplete answers. Summary of Returns September 2018 September vs. August Six Months from Now vs. September Prev. Prev. Diff. Inc. No ch. Dec. Diff. Diff. Inc. No ch. Dec. Diff. Index Index Index Index General Business 11.9 38.2 45.5 15.3 22.9 38.8 52.5 24.5 16.1 36.3 Conditions New Orders 9.9 42.0 37.1 20.6 21.4 38.1 50.0 27.4 15.3 34.7 Shipments 16.6 34.6 47.8 15.0 19.6 42.1 50.0 30.8 14.5 35.5 Unfilled Orders 5.6 23.8 64.9 11.2 12.6 12.3 24.4 56.3 13.9 10.5 Delivery Times 6.4 19.3 72.0 8.2 11.1 2.5 12.8 73.4 7.6 5.2 Inventories 15.4 16.8 63.0 20.2 -3.5 2.2 21.7 50.7 21.3 0.4 Prices Paid 55.0 44.4 50.8 4.8 39.6 60.2 54.5 35.8 4.9 49.6 Prices Received 33.2 25.4 68.7 5.8 19.6 58.9 48.1 42.7 3.9 44.2 Number of Emp. 14.3 26.3 65.0 8.7 17.6 32.1 37.6 52.4 5.8 31.7 Avg. Emp. Wrkwk. 10.7 23.8 64.4 9.2 14.6 15.2 19.1 68.9 8.2 10.8 Capital Ex. -- -- -- -- -- 27.1 31.7 54.8 5.0 26.7 Notes: (1) Diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. (2) All data are seasonally adjusted. (3) Percentages may not sum to 100 percent because of rounding, omission by respondents, or both. (4) Survey results reflect data received through September 17, 2018. Federal Reserve Bank of Philadelphia Manufacturing Business Outlook Survey Released: September 20, 2018, at 8:30 a.m. ET. August 2018 Growth in regional manufacturing activity slowed in August, according to results from this month’s Manufacturing Business Outlook Survey. All the broad indicators remained positive but fell from their readings in July. The survey’s respondents continued to indicate price increases for purchased inputs and their own manufactured products, but these price indexes moderated slightly this month. Expectations for the next six months remained optimistic, with most broad future indicators showing improvement. Current Indicators Still Positive but Weaken The diffusion index for current general activity decreased 14 points this month to 11.9, its lowest reading in 21 months. Nearly 32 percent of the manufacturers reported increases in overall activity this month, while 20 percent reported decreases. The new orders index fell 22 points to 9.9. More than 34 percent of the firms reported an increase in new orders, while 24 percent reported a decrease. The firms continued to report overall higher employment, but increases were less widespread this month. Just 18 percent of the responding firms reported increases in employment this month, down from 24 percent last month. Only 4 percent of the firms reported decreases in employment. The current employment index fell 3 points to 14.3. The current average workweek index declined 3 points. Many Firms Continue to Report Price Increases The survey’s current price measures moderated slightly but remain elevated, indicating that price increases for both purchased inputs and the firms’ own manufactured goods remain widespread. The prices paid index fell 8 points. Price increases for purchased inputs were reported by 63 percent of the manufacturers this month. Nearly 35 percent of the firms reported higher prices for their own manufactured goods this month, although the prices received index fell 3 points. Six-Month Indicators Rebound The diffusion index for future general activity, after declining four consecutive months, increased from 29.0 in July to 38.8 this month. Over 50 percent of the firms expect increases in activity over the next six months, while 12 percent expect declines. The future new orders and shipments indexes increased 10 points and 5 points, respectively. The future prices paid and received indexes edged higher, with 64 percent of the firms expecting price increases for purchased inputs over the next six months and 62 percent expecting higher prices for their own manufactured goods. The future employment index increased 5 points to a reading of 32.1, with almost 39 percent of the firms expecting to add workers over the next six months. Firms’ Own Prices Expected to Match Rate of Inflation In this month’s special questions, the firms were asked to forecast the changes in the prices of their own products and for U.S. consumers over the next four quarters. Regarding their own prices, the firms’ median forecast was for an increase of 3.0 percent, the same as when the same question was last asked in May. The firms expect their employee compensation costs (wages plus benefits on a per employee basis) to rise 3.0 percent over the next four quarters, the same as the previous forecast. When asked about the rate of inflation for U.S. consumers over the next year, the firms’ median forecast was 3.0 percent, slightly higher than the 2.5 percent projected in the previous survey. The firms’ forecast for the long-run (10-year average) inflation rate was also 3.0 percent. Summary Responses to the Manufacturing Business Outlook Survey indicated slower growth for the region’s manufacturing sector in August. The survey’s broad current indicators declined from their readings last month but remained positive. Looking ahead six months, however, the firms remain optimistic, and most of the future indicators showed improvement. Special Questions (August 2018) Over the next year (2018:Q3 to 2019:Q3), please list your expected annual percent change with respect to the following: Current Previous Forecast Forecast (May 2018) 1. For your firm: Prices your firm will receive (for its own goods and services sold). 3.0 3.0 Compensation your firm will pay per employee (for wages and benefits). 3.0 3.0 2. For your employees: Prices your employees will pay (for goods and services where they live). 3.0 2.0 3. For U.S. consumers: Prices U.S. consumers will pay (for goods and services). 3.0 2.5 For the next 10 years (2018 through 2027), what is your expected annual average percent change with respect to the following: 4. For U.S. consumers: Prices U.S. consumers will pay (for goods and services). 3.0 2.0 The numbers represent medians of the individual forecasts (as percent changes). The forecasts are over the next year for questions 1 to 3 and an annual average for the next 10 years for question 4. Summary of Returns August 2018 August vs. July Six Months from Now vs. August Prev. Prev. Diff. Inc. No ch. Dec. Diff. Diff. Inc. No ch. Dec. Diff. Index Index Index Index General Business 25.7 31.5 48.1 19.7 11.9 29.0 50.4 28.2 11.6 38.8 Conditions New Orders 31.4 34.4 41.2 24.4 9.9 28.3 51.9 27.9 13.8 38.1 Shipments 24.7 36.3 44.1 19.6 16.6 37.2 57.7 25.5 15.6 42.1 Unfilled Orders 11.0 17.4 68.5 11.8 5.6 3.3 25.8 52.5 13.6 12.3 Delivery Times 11.0 14.0 75.9 7.6 6.4 -1.6 14.9 65.5 12.4 2.5 Inventories 14.4 27.4 56.8 12.0 15.4 9.0 20.7 53.9 18.5 2.2 Prices Paid 62.9 63.1 28.2 8.1 55.0 59.7 63.9 24.0 3.7 60.2 Prices Received 36.3 34.8 63.5 1.7 33.2 50.6 61.8 29.5 2.9 58.9 Number of Emp. 16.8 18.0 78.2 3.7 14.3 27.5 38.7 49.7 6.6 32.1 Avg. Emp. Wrkwk. 13.7 23.7 61.8 13.0 10.7 17.7 26.6 59.6 11.4 15.2 Capital Ex. -- -- -- -- -- 31.4 37.8 46.5 10.7 27.1 Notes: (1) Diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. (2) All data are seasonally adjusted. (3) Percentages may not sum to 100 percent because of rounding, omission by respondents, or both. (4) Survey results reflect data received through August 13, 2018. Federal Reserve Bank of Philadelphia Manufacturing Business Outlook Survey Released: August 16, 2018, at 8:30 a.m. ET. July 2018 Regional manufacturing activity continued to expand in July, according to results from this month’s Manufacturing Business Outlook Survey. All the broad indicators remained positive, with the general activity and new orders indexes improving this month. The survey’s price indexes suggest widespread increases for purchased inputs, and more firms reported price increases for their own manufactured goods. Expectations for the next six months continued to moderate but remain positive overall. Current Indicators Reflect Continued Growth The diffusion index for current general activity increased 6 points this month. Over 44 percent of the manufacturers reported increases in overall activity this month, while 19 percent reported decreases. The new orders index rebounded 14 points after falling 23 points in June. Nearly 46 percent of the firms reported an increase in orders, and 14 percent reported declines. The current shipments index, however, decreased 4 points. The firms reported, on balance, increases in unfilled orders and longer delivery times this month. The firms continued to report overall higher employment, but increases were not as widespread this month. Over 24 percent of the responding firms reported increases in employment this month, down from 34 percent last month. The current employment index fell 14 points to 16.8. The current average workweek index declined 11 points. More Firms Report Price Increases The manufacturers continued to report higher prices for both purchased inputs and their own manufactured goods. Price increases for purchased inputs were reported by 63 percent of the manufacturers this month, up from 54 percent last month. The index has now risen 30 points since January. The current prices received index, reflecting the manufacturers’ own prices, increased 3 points. Over 36 percent of the firms reported higher prices for their manufactured goods this month. Six-Month Indicators Continue to Moderate The diffusion index for future general activity decreased for the fourth consecutive month, falling from 34.8 in June to 29.0 this month. Over 42 percent of the firms expect increases in activity over the next six months, while 13 percent expect declines. The future new orders index decreased 10 points, but the future shipments index was virtually unchanged. More than 60 percent of the firms expect price increases for purchased inputs over the next six months. Over 52 percent expect higher prices for their own manufactured goods. The future employment index decreased 7 points to a reading of 27.5, with almost 35 percent of the firms expecting to add workers over the next six months. Fewer Firms Report Summer Slowdowns This Year In this month’s special questions, firms were asked to assess the importance of seasonal factors in production and whether these seasonal factors have changed in importance over time. Most firms (61 percent) reported that seasonal factors were not significant; however, 36 percent indicated that they were. The firms continued to report that the most common pattern was increased production during the spring and fall and decreased activity in midsummer and during the winter months. Similar to the pattern reported last year, nearly 52 percent of the firms with seasonal patterns reported no difference in seasonal effects, 26 percent saw seasonal patterns as less important, and only 8 percent indicated they were more significant. The firms were also asked about whether they were scheduling plant shutdowns or production slowdowns during the summer months this year. Over 19 percent indicated that such slowdowns were scheduled this summer, down from 26 percent when the question was asked last year. Summary Responses to the July Manufacturing Business Outlook Survey indicate continued expansion for the region’s manufacturing sector. The firms reported increases in new orders, but employment growth was less widespread than in June. The firms also continued to report higher prices for inputs and their own manufactured goods. Looking ahead six months, the firms remain optimistic overall, but the survey’s future indicators continued to moderate. Note: The Manufacturing Business Outlook Survey, which is the oldest regional Federal Reserve manufacturing survey, turned 50 in May. Read more about the history of the survey at www.PhiladelphiaFed.org/MBOS50. Special Questions (July 2018) 1. How important are seasonal factors in your monthly production levels? Percentage of Firms ___________________________________________ Significant Not Significant No Response 2017 35.4 63.1 1.6 2018 35.5 61.3 3.2 2. Have seasonal factors become more or less important for your business over time? Percentage of Firms _______________________________________________________________________________ Less No More No Not Significant Difference Significant Response Applicable 2017 23.1 52.3 10.8 4.6 9.2 2018 25.8 51.6 8.1 8.1 6.5 3. Are you scheduling plant shutdowns or production slowdowns during the summer months this year? July 2018 July 2017 (%) (%) Yes 19.3 26.2 No 75.8 70.8 NR 4.8 3.1 Summary of Returns July 2018 July vs. June Six Months from Now vs. July Prev. Prev. Diff. Inc. No ch. Dec. Diff. Diff. Inc. No ch. Dec. Diff. Index Index Index Index General Business 19.9 44.1 37.4 18.5 25.7 34.8 42.1 32.8 13.1 29.0 Conditions New Orders 17.9 45.7 33.9 14.2 31.4 38.2 43.8 35.4 15.5 28.3 Shipments 28.7 41.6 41.5 16.9 24.7 37.0 53.0 30.6 15.8 37.2 Unfilled Orders -2.7 25.0 59.9 14.0 11.0 17.2 21.2 58.1 17.8 3.3 Delivery Times 9.6 16.6 75.8 5.6 11.0 1.5 9.0 77.7 10.6 -1.6 Inventories 10.2 27.2 59.6 12.8 14.4 17.2 20.1 63.0 11.2 9.0 Prices Paid 51.8 62.9 37.1 0.0 62.9 62.6 60.4 36.2 0.7 59.7 Prices Received 33.2 36.3 63.7 0.0 36.3 56.6 52.2 43.4 1.6 50.6 Number of Emp. 30.4 24.1 64.8 7.4 16.8 34.1 34.6 56.8 7.1 27.5 Avg. Emp. Wrkwk. 24.2 24.4 65.0 10.7 13.7 14.1 25.9 63.2 8.3 17.7 Capital Ex. -- -- -- -- -- 36.5 40.5 46.8 9.1 31.4 Notes: (1) Diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. (2) All data are seasonally adjusted. (3) Percentages may not sum to 100 percent because of rounding, omission by respondents, or both. (4) Survey results reflect data received through July 16, 2018. Federal Reserve Bank of Philadelphia Manufacturing Business Outlook Survey Released: July 19, 2018, at 8:30 a.m. ET. June 2018 Results from the June Manufacturing Business Outlook Survey suggest continued expansion of the region’s manufacturing sector. All the broad indicators remained positive, although the indicators for general activity and new orders fell notably. The firms continued to report higher prices for purchased inputs and their own manufactured goods. Expectations for the next six months continued to moderate but remain positive overall. Current Indicators Suggest Continuing Growth The diffusion index for current general activity remained positive but decreased 15 points this month. Almost 37 percent of the manufacturers reported increases in overall activity this month, while 17 percent reported decreases. The new orders index fell nearly 23 points this month. While 38 percent of the firms reported an increase in orders, 20 percent reported declines. The current shipments index increased 3 points. The unfilled orders index suggested that firms’ backlogs diminished: The index fell 18 points and registered its first negative reading (-2.7) since January. The delivery times index remained positive but fell 9 points to its lowest reading in four months. The firms continued to report overall increases in employment. Nearly 34 percent of the responding firms reported increases in employment this month, while 3 percent reported decreases. The current employment index, at 30.4, was virtually unchanged from May. The current average workweek index, however, decreased 10 points. Price Increases Remain Widespread The firms continued to report higher prices for both purchased inputs and their own manufactured goods, although the survey’s price indicators fell modestly from their May readings. Price increases for purchased inputs were reported by 54 percent of the manufacturers this month, but the prices paid diffusion index edged 1 point lower. The current prices received index, reflecting the manufacturers’ own prices, decreased 3 points but remains at a high reading of 33.2. Nearly 34 percent of the firms reported higher prices for their manufactured goods. Six-Month Indicators Continue to Moderate The diffusion index for future general activity decreased for the third consecutive month, falling from 38.7 in May to 34.8 this month. Nearly 48 percent of the firms expect increases in activity over the next six months, while 13 percent expect declines. The future new orders index decreased 2 points, and the future shipments index decreased 10 points. Nearly 67 percent of the firms expect price increases for purchased inputs over the next six months. Fifty-seven percent expect higher prices for their own manufactured goods, up from 36 percent last month. The future employment index decreased 9 points to a reading of 34.1, with more than 38 percent of the firms expecting to add workers over the next six months. Firms Expect Production Increases to Continue In this month’s special questions, firms were asked to estimate their total production growth for the second quarter ending this month along with expected growth for the third quarter. The share of firms reporting expected increases in third-quarter production (67 percent) was greater than the share reporting decreases (16 percent). Looking ahead to the third quarter, 58 percent of the firms expect acceleration in the rate of production, while 28 percent of the firms expect deceleration. For those firms expecting an increase in production, 39 percent expect to hire additional workers. The remaining firms indicated that they would increase the work hours of current workers (25 percent) or increase the productivity of current workers (27 percent) rather than increasing the number of workers. Summary Responses to the June Manufacturing Business Outlook Survey indicate continued expansion for the region’s manufacturing sector, although indicators for general activity and new orders fell notably from last month. The firms reported continued increases in employment, and the indexes for prices paid and received continued to reflect widespread price pressures. Looking ahead six months, the firms remain optimistic overall, but the survey’s future indicators continued to moderate. Note: The Manufacturing Business Outlook Survey, which is the oldest regional Federal Reserve manufacturing survey, turned 50 in May. Read more about the history of the survey at www.PhiladelphiaFed.org/MBOS50. Special Questions (June 2018) 1. How will your firm’s total production for the second quarter compare with that of the first quarter?* Change attributable to (%): ______________________________________________ % of firms Seasonal Business factors conditions Other Increase 66.7 14.0 40.4 3.5 No change 17.5 Decrease 15.8 7.0 7.0 1.8 *Subtotals may not sum to totals because of incomplete answers. 2. For the upcoming third quarter, what do you expect for the pace of growth in production at your plant compared with the second quarter? % of firms Significant acceleration 12.3 Some acceleration 24.6 Slight acceleration 21.1 Subtotal 58.0 No change 14.0 Slight deceleration 14.0 Some deceleration 10.5 Significant deceleration 3.5 Subtotal 28.0 3. If you expect to increase production in the third quarter, how will this be accomplished? % of firms Hiring additional workers 38.6 Increasing work hours of current staff, without hiring additional workers 25.0 Increasing productivity of current staff, without hiring additional workers 27.3 Other 9.1 Summary of Returns June 2018 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 Business 34.4 36.6 44.7 16.8 19.9 38.7 47.8 28.0 13.0 34.8 Conditions New Orders 40.6 38.0 41.8 20.2 17.9 40.3 46.0 40.1 7.7 38.2 Shipments 25.8 41.1 46.6 12.3 28.7 46.8 49.8 32.2 12.7 37.0 Unfilled Orders 15.3 17.2 61.9 19.9 -2.7 9.4 27.0 56.2 9.8 17.2 Delivery Times 18.5 15.8 76.5 6.2 9.6 7.5 11.2 73.2 9.7 1.5 Inventories 8.1 27.7 51.8 17.5 10.2 14.8 29.6 48.2 12.3 17.2 Prices Paid 52.6 53.9 41.8 2.2 51.8 63.4 66.6 25.1 4.0 62.6 Prices Received 36.4 33.9 63.5 0.7 33.2 33.6 57.0 35.9 0.4 56.6 Number of Emp. 30.2 33.5 59.9 3.1 30.4 42.8 38.1 52.3 4.1 34.1 Avg. Emp. Wrkwk. 34.4 29.4 62.9 5.2 24.2 10.1 22.6 65.3 8.5 14.1 Capital Ex. -- -- -- -- -- 21.6 41.3 47.6 4.8 36.5 Notes: (1) Diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. (2) All data are seasonally adjusted. (3) Percentages may not sum to 100 percent because of rounding, omission by respondents, or both. (4) Survey results reflect data received through June 18, 2018. Federal Reserve Bank of Philadelphia Manufacturing Business Outlook Survey Released: June 21, 2018, at 8:30 a.m. ET. May 2018 Results from the May Manufacturing Business Outlook Survey suggest a pickup in growth of the region’s manufacturing sector. The survey’s indexes for general activity, new orders, shipments, and employment increased from their readings in April. A notable share of firms also reported higher prices for their own manufactured goods this month. The survey’s future indexes, measuring expectations for the next six months, reflected continued optimism. Current Indicators Suggest a Pickup in Growth The diffusion index for current general activity increased 11 points, from 23.2 in April to 34.4 this month. Over 43 percent of the manufacturers reported increases in overall activity this month, while 9 percent reported decreases. Both current new orders and shipments indexes improved this month, increasing 22 points and 2 points, respectively. Both the delivery times and unfilled orders indexes remained positive, suggesting longer delivery times and increases in unfilled orders. Inventories were, on balance, slightly higher this month: The percentage of firms reporting an increase in inventories (25 percent) was higher than the percentage reporting a decrease (17 percent). The firms continued to report overall increases in employment. Nearly 37 percent of the responding firms reported increases in employment, while 6 percent reported decreases this month. The current employment index edged 3 points higher to 30.2, its highest reading in seven months. The firms also reported a longer average workweek this month: The current average workweek index increased 13 points. Price Indexes Suggest Increasing Prices Price increases for purchased inputs were reported by 55 percent of the manufacturers this month, down slightly from 59 percent in April. The prices paid diffusion index fell 4 points but remains at an elevated level. The current prices received index, reflecting the manufacturers’ own prices, increased 7 points to a reading of 36.4, its second consecutive month of increase and highest reading since February 1989. Firms Remain Optimistic The diffusion index for future general activity decreased from 40.7 in April to 38.7 this month. Over 48 percent of the firms expect increases in activity over the next six months, while 10 percent expect declines. The future new orders index edged 3 points higher, while the future shipments index declined 1 point. Nearly 64 percent of the firms expect price increases for purchased inputs over the next six months, and 36 percent expect higher prices for their own manufactured goods. Over 49 percent of the firms expect to add workers over the next six months, up from 42 percent in April. The future employment index increased 8 points to a reading of 42.8, its highest reading since August 1983. Firms Expect Own Prices to Exceed Inflation Rate In this month’s special questions, the firms were asked to forecast the changes in the prices of their own products and for U.S. consumers over the next four quarters. Regarding their own prices, the firms’ median forecast was for an increase of 3.0 percent, the same as when the same question was last asked in February. When asked about the rate of inflation for U.S. consumers over the next year, the firms’ median forecast was 2.5 percent, also the same as the previous forecast. The firms expect their employee compensation costs (wages plus benefits on a per employee basis) to rise 3.0 percent over the next four quarters, the same as the previous forecast. The firms’ forecast for the long-run (10-year average) inflation rate fell from 3.0 percent to 2.0 percent. Summary Responses to the May Manufacturing Business Outlook Survey indicate a pickup in growth for the region’s manufacturing sector. The indexes for general activity, new orders, shipments, and employment all improved from their readings last month. The indexes for prices paid and received continued to suggest price pressures. Looking ahead six months, the firms continued to be optimistic about the outlook for manufacturing activity. The Manufacturing Business Outlook Survey, which is the oldest regional Federal Reserve manufacturing survey, turns 50 this month. Read more about the history of the survey at www.PhiladelphiaFed.org/MBOS50. Special Questions (May 2018) Over the next year (2018:Q2 to 2019:Q2), please list your expected annual percent change with respect to the following: Current Previous Forecast Forecast (February 2018) 1. For your firm: Prices your firm will receive (for its own goods and services sold). 3.0 3.0 Compensation your firm will pay per employee (for wages and benefits). 3.0 3.0 2. For your employees: Prices your employees will pay (for goods and services where they live). 2.0 2.5 3. For U.S. consumers: Prices U.S. consumers will pay (for goods and services). 2.5 2.5 For the next 10 years (2018 through 2027), what is your expected annual average percent change with respect to the following: 4. For U.S. consumers: Prices U.S. consumers will pay (for goods and services). 2.0 3.0 The numbers represent medians of the individual forecasts (as percent changes). The forecasts are over the next year for questions 1 to 3 and an annual average for the next 10 years for question 4. Summary of Returns May 2018 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 Business 23.2 43.2 47.8 8.8 34.4 40.7 48.3 30.1 9.6 38.7 Conditions New Orders 18.4 48.4 42.4 7.7 40.6 37.2 51.5 32.9 11.2 40.3 Shipments 23.9 38.9 47.9 13.1 25.8 47.9 58.6 25.1 11.8 46.8 Unfilled Orders 7.8 25.8 63.0 10.6 15.3 7.6 23.2 59.8 13.8 9.4 Delivery Times 20.7 24.3 69.2 5.8 18.5 9.6 15.8 70.3 8.3 7.5 Inventories 9.5 25.3 54.3 17.3 8.1 16.5 28.5 52.7 13.8 14.8 Prices Paid 56.4 54.6 42.7 2.0 52.6 66.8 63.8 32.9 0.4 63.4 Prices Received 29.8 36.4 63.6 0.0 36.4 47.9 36.1 55.1 2.5 33.6 Number of Emp. 27.1 36.7 55.1 6.4 30.2 34.6 49.2 38.8 6.3 42.8 Avg. Emp. Wrkwk. 21.6 36.4 61.4 2.0 34.4 14.0 19.2 67.1 9.1 10.1 Capital Ex. -- -- -- -- -- 29.8 30.9 54.7 9.2 21.6 Notes: (1) Diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. (2) All data are seasonally adjusted. (3) Percentages may not sum to 100 percent because of rounding, omission by respondents, or both. (4) Survey results reflect data received through May 14, 2018. Federal Reserve Bank of Philadelphia Manufacturing Business Outlook Survey Released: May 17, 2018, at 8:30 a.m. ET. April 2018 Results from the April Manufacturing Business Outlook Survey suggest continued growth for the region’s manufacturing sector. Although the survey’s indexes for general activity and employment improved slightly, the indexes for new orders and shipments moderated. The firms also reported higher prices for both inputs and their own manufactured goods this month. The survey’s future indexes, measuring expectations for the next six months, reflected continued optimism. Current Indicators Suggest Continued Growth The diffusion index for current general activity edged 1 point higher, from 22.3 in March to 23.2 this month. Nearly 37 percent of the manufacturers reported increases in overall activity this month, while 14 percent reported decreases. The indexes for current new orders and shipments remained positive but fell 17 points and 9 points, respectively. The firms continued to report overall increases in employment. Over 31 percent of the responding firms reported increases in employment, while 4 percent reported decreases this month. The current employment index edged 2 points higher to 27.1, its highest reading in six months. The firms also reported a longer average workweek this month: The current average workweek index increased 9 points. Price Indexes Suggest Increasing Prices Price increases for purchased inputs were reported by 59 percent of the manufacturers this month, up notably from 44 percent in March. The prices paid diffusion index increased 14 points to its highest reading since March 2011. The current prices received index, reflecting the manufacturers’ own prices, increased 9 points to a reading of 29.8, its highest reading since May 2008. Firms Remain Optimistic The diffusion index for future general activity decreased from 47.9 in March to 40.7 this month. Nearly 50 percent of the firms expect increases in activity over the next six months, while 9 percent expect declines. The future new orders index fell 12 points, while the future shipments index rose 5 points. Slightly more than 68 percent of the firms expect price increases for purchased inputs over the next six months, and 50 percent expect higher prices for their own manufactured goods. Nearly 42 percent of the firms expect to add workers over the next six months. Although the future employment index declined 3 points, it remains at a high reading of 34.6. Firms Expect Higher Capital Spending in 2018 In special questions this month, firms were surveyed about their capital spending plans for 2018 compared with actual spending levels in 2017. Most of the special questions were also asked last April. Nearly 53 percent of the firms indicated that total capital spending would increase this year compared with 2017, while 19 percent indicated that spending would decrease. Over 27 percent of the firms indicated that the recent tax changes had positively affected their planned capital spending for 2018. Nearly 19 percent of the firms were not yet sure of the impacts on spending plans. The need to replace capital goods and expected high sales growth were the most cited reasons for the increase in capital spending plans. Among the firms that indicated that capital spending would increase, 71 percent indicated that the majority of the spending would occur in the second half of the year. Among the firms that do not plan to increase capital spending, the most cited reasons were limited need to replace capital goods and information technology equipment. Summary Responses to the April Manufacturing Business Outlook Survey suggest continued growth for the region’s manufacturing sector. The indexes for general activity, new orders, shipments, and employment all indicated continued expansion this month. The indexes for prices paid and received also increased notably this month. In responses to special questions, over half of the firms indicated plans to increase capital spending this year. Looking ahead six months, the firms continued to be optimistic about the outlook for manufacturing activity. Special Questions (April 2018) 1. In 2018, do you expect the following capital expenditure categories to be lower than, the same, or higher than last year? Lower Same Higher Diffusion (%) (%) (%) (%) Noncomputer equipment 15.9 37.7 46.4 30.4 Software 17.4 50.7 31.9 14.5 Computers and related hardware 18.8 47.8 33.3 14.5 Structures 19.7 48.5 31.8 12.1 Energy-saving investments 14.3 73.0 12.7 -1.6 Total Capital Spending 19.1 27.9 52.9 33.8 2. If you plan to increase capital spending, what will be the impact of tax reform passed in December 2017 on your planned total capital spending for 2018?* (%) Significant increase in total capital spending (>10 percent) 10.0 Moderate increase in total capital spending 7.1 Slight increase in total capital spending 10.0 Not sure 18.6 No response 5.7 3. If your firm plans to increase total capital spending, what are the other major factors behind your plan?** 2017 2018 (%) (%) Need to replace other capital goods 42.4 64.7 High expected sales growth 51.5 52.9 Improved cash flow or balance sheet position at the firm 21.2 35.3 Need to replace information technology equipment 33.3 35.3 High current capacity utilization 30.3 32.4 Need to replace equipment that consumes too much energy 6.1 8.8 Lower cost or better availability of external finance 0.0 5.9 4. If your firm plans to increase total capital spending, when do you expect the majority of this spending to occur? 2017 2018 (%) (%) First half of year 36.7 29.0 Second half of year 63.3 71.0 5. If your firm does not plan to increase total capital spending, what are the major factors behind this decision?** 2017 2018 (%) (%) Limited need to replace other capital goods 54.5 76.9 Limited need to replace information technology equipment 36.4 53.8 Low current capacity utilization 54.5 30.8 Poorer cash flow or balance sheet position at the firm 27.3 23.1 Low expected sales growth 27.3 15.4 *Percentages reflect all responding firms, not only those that indicated higher expected levels of capital spending. **Percentages will not sum to 100 percent because more than one response could be selected. Summary of Returns April 2018 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 22.3 36.9 48.1 13.7 23.2 47.9 49.8 35.7 9.1 40.7 Conditions New Orders 35.7 40.8 36.4 22.4 18.4 48.8 47.8 39.3 10.6 37.2 Shipments 32.4 43.3 36.4 19.4 23.9 43.4 55.2 32.3 7.3 47.9 Unfilled Orders 20.1 21.1 64.7 13.4 7.8 10.8 19.4 68.6 11.8 7.6 Delivery Times 14.0 24.3 71.0 3.6 20.7 9.6 20.6 68.2 11.0 9.6 Inventories 16.5 31.0 47.5 21.5 9.5 14.3 36.5 40.3 20.0 16.5 Prices Paid 42.6 58.9 38.1 2.5 56.4 62.8 68.3 24.5 1.5 66.8 Prices Received 20.7 34.9 59.9 5.1 29.8 51.3 50.4 46.0 2.5 47.9 Number of Emp. 25.6 31.2 64.7 4.1 27.1 37.1 41.8 46.8 7.2 34.6 Avg. Emp. Wrkwk. 12.8 30.1 60.5 8.5 21.6 21.8 23.6 64.3 9.5 14.0 Capital Ex. -- -- -- -- -- 35.9 38.8 42.5 9.0 29.8 Notes: (1) Diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. (2) All data are seasonally adjusted. (3) Percentages may not sum to 100 percent because of rounding, omission by respondents, or both. (4) Survey results reflect data received through April 16, 2018. Federal Reserve Bank of Philadelphia Manufacturing Business Outlook Survey Released: April 19, 2018, at 8:30 a.m. ET. March 2018 Results from the March Manufacturing Business Outlook Survey suggest continued growth for the region’s manufacturing sector. Although the survey’s index for general activity moderated, the indexes for new orders and shipments improved. The survey’s future indexes, measuring expectations for the next six months, reflected continued optimism. Current Indicators Suggest Continued Growth The diffusion index for current general activity remained positive but declined, from 25.8 in February to 22.3 this month. Nearly 37 percent of the manufacturers reported increases in overall activity this month, while 14 percent reported decreases. The indexes for current new orders and shipments recorded notable improvements this month. The current new orders index increased 11 points, with 52 percent of the firms reporting an increase in new orders. The shipments index increased 17 points. The indexes for unfilled orders and delivery times were positive and increased 6 points and 10 points, respectively. Inventories were higher this month: The current inventories index increased from -0.9 to 16.5. The firms continued to report increases in employment. Nearly 35 percent of the responding firms reported increases in employment, while 9 percent reported decreases this month. The current employment index edged slightly higher to 25.6, its highest reading in five months. Firms Report Cost Pressures Price increases for purchased inputs were reported by 44 percent of the manufacturers this month. The prices paid diffusion index fell 2 points to 42.6 but remains near last month’s reading, which was the highest since 2011. The current prices received index, reflecting the manufacturers own prices, declined 3 points to a reading of 20.7. Firms Remain Optimistic The diffusion index for future general activity increased from 41.2 in February to 47.9 this month. Nearly 58 percent of the firms expect increases in activity over the next six months, while 10 percent expect declines. The future new orders and shipments indexes remain at high readings but fell this month: The future new orders index fell less than 1 point, while the future shipments index fell 8 points. Nearly 64 percent of the firms expect price increases for purchased inputs over the next six months, while 54 percent expect higher prices for their own manufactured goods. The future prices received index is now at its highest reading since December 1988. Firms Report Difficulties Finding Skilled Workers in Tight Labor Market In special questions this month, firms were asked about current conditions in the labor market. The 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 64 percent of the firms reported labor shortages, while a higher percentage (70 percent) indicated skills mismatches between requirements and available labor. These percentages were slightly higher than the responses the last time the questions were asked in March 2017. Nearly 48 percent of the surveyed firms also reported that they had positions that have remained vacant for more than 90 days. The scope of the perceived labor and skills shortages were evident in responses to specific questions about hiring difficulties. Over 41 percent of the firms indicated a significant shortage in qualified applicants for some skills and positions, while 35 percent of the firms said they were seeing a tightening labor market, but it was still possible to fill positions. Summary Responses to the March Manufacturing Business Outlook Survey suggest continued growth for the region’s manufacturing sector. The indexes for general activity, new orders, shipments, and employment all indicated continued expansion this month. In responses to special questions, the firms reported difficulties finding skilled workers, especially those with specific machine and tool skills, and over half of the firms are raising wages to address these shortages. Looking ahead six months, the firms continued to be optimistic about the outlook for manufacturing in the region. Special Questions (March 2018) 1. Has your firm experienced any significant labor shortages or mismatches between labor skill requirements and the labor supply?* 2018 2017 (%) (%) Labor shortages 63.8 60.3 Skills mismatches 69.6 67.6 Job vacancies remaining more than three months 47.8 47.1 2. Is your firm experiencing a labor shortage in general or in certain skills, abilities, or positions? 2018 (%) We are hiring and receive a sufficient number of qualified applicants to fill open positions. 1.5 - We are seeing a significant shortage in qualified applicants for some skills and positions. 41.2 - We are seeing a tightening labor market, such that it is getting harder to fill positions in general, but still possible to fill them. 35.3 - We are seeing a broad labor shortage, such that it is hard to fill any position. 7.4 - We are not hiring. 7.4 - Not applicable 2.9 - No response 4.4 - 3. Rank the following categories of skills shortages in terms of their current economic importance to your firm. (Percentage of firms reporting the category in its top three rankings)* 2018 2017 (%) (%) Skills in the use of production machines or tools 67.2 91.2 Specific plant and systems operator skills 63.8 64.9 Supervisory, management, or administrative skills 44.8 49.1 Basic skills (reading, writing, and math) 31.0 35.1 Computer skills 34.5 24.6 English language skills 20.7 8.8 Other skills 8.6 5.3 4. What actions has your firm taken to address skills shortages? (Check as many actions as apply.)* 2018 2017 (%) (%) Increase recruitment efforts 75.4 77.9 Provide additional training to existing staff 52.2 54.4 Increase wages 50.7 45.6 Expand recruitment outside of the region 24.6 29.4 Partner with educational institution to align curriculum with talent needs 34.8 29.4 Increase recruitment incentives 15.9 20.6 Increase benefits 14.5 11.8 Decrease production 4.3 7.4 Use phased retirement program to retain older workers 10.1 8.8 Other 0.0 8.8 *Percentages will not sum to 100 percent because more than one response could be selected. Summary of Returns March 2018 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 Business 25.8 36.5 45.1 14.3 22.3 41.2 57.8 29.7 9.9 47.9 Conditions New Orders 24.5 52.1 31.4 16.4 35.7 49.1 60.3 27.1 11.5 48.8 Shipments 15.5 44.8 38.7 12.5 32.4 51.7 54.7 28.8 11.3 43.4 Unfilled Orders 14.5 29.4 59.6 9.3 20.1 18.8 24.8 58.6 14.0 10.8 Delivery Times 4.5 22.5 69.0 8.5 14.0 16.6 20.8 63.5 11.2 9.6 Inventories -0.9 28.4 59.1 11.9 16.5 27.5 32.7 46.3 18.4 14.3 Prices Paid 45.0 43.7 54.8 1.1 42.6 65.2 64.0 32.5 1.2 62.8 Prices Received 23.9 21.7 76.3 1.1 20.7 49.5 53.7 43.8 2.5 51.3 Number of Emp. 25.2 34.6 55.5 9.0 25.6 40.4 43.2 47.3 6.1 37.1 Avg. Emp. Wrkwk. 13.7 20.0 70.6 7.2 12.8 14.7 29.0 57.0 7.1 21.8 Capital Ex. -- -- -- -- -- 40.4 45.4 39.1 9.5 35.9 Notes: (1) Diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. (2) All data are seasonally adjusted. (3) Percentages may not sum to 100 percent because of rounding, omission by respondents, or both. (4) Survey results reflect data received through March 12, 2018. Federal Reserve Bank of Philadelphia Manufacturing Business Outlook Survey Released: March 15, 2018, at 8:30 a.m. ET. February 2018 Results from the Manufacturing Business Outlook Survey suggest that the region’s manufacturing sector continues to expand in February. The indexes for general activity, new orders, and employment were all positive this month and increased from their readings last month. Price increases for inputs were more widespread this month, according to the respondents. The survey’s future indexes, reflecting expectations for the next six months, suggest continued optimism. Most Current Indicators Improved This Month The index for current manufacturing activity increased 4 points in February to a reading of 25.8. The index has stayed within a relatively narrow range over the past nine months. Nearly 41 percent of the firms indicated increases in activity this month, while 15 percent reported decreases. The demand for manufactured goods, as measured by the survey’s current new orders index, showed notable improvement: The diffusion index increased 14 points, with 41 percent of the firms reporting an increase in new orders this month. The current shipments index remained positive but fell 15 points to 15.5. Both the unfilled orders and delivery times indexes were positive, suggesting an increase in unfilled orders and slower deliveries. The survey’s indicators for labor market conditions suggest a pickup in hiring this month. Over 30 percent of the firms reported increases in employment this month, up from 24 percent in January. The employment index increased 8 points. The firms also reported overall higher average work hours in February, although the workweek index fell 3 points to 13.7. Input Prices Increases Are More Widespread Cost pressures were more widespread this month among the reporting manufacturers: The prices paid index increased 12 points to 45.0, its highest reading since May 2011. Forty-six percent of the firms reported higher input prices this month compared with 33 percent in January. With respect to prices received for manufactured goods, 25 percent of the firms reported higher prices, and 1 percent reported lower prices. The prices received index edged down 1 point to 23.9. Firms’ Expected Price Increases Edged Higher Along with Inflation Forecast In this month’s special questions, the firms were asked to forecast the changes in the prices of their own products and for U.S. consumers over the next four quarters. Regarding their own prices, the firms’ median forecast was for an increase of 3.0 percent, up from 2.0 percent when the same question was last asked in November 2017. When asked about the rate of inflation for U.S. consumers over the next year, the firms’ median forecast was 2.5 percent, an increase from the previous forecast of 2.0 percent in November. The firms expect their employee compensation costs (wages plus benefits on a per employee basis) to rise 3.0 percent over the next four quarters, the same as the previous forecast. The firms’ forecast for the long-run (10-year average) inflation rate rose from 2.5 percent to 3.0 percent. Firms Remain Optimistic The survey’s six-month indicators remained at high readings in February. The diffusion index for future general activity declined 1 point to 41.2 in February. Over 55 percent of the manufacturers expect increases in activity over the next six months, while 14 percent expect declines. The indexes for future new orders and shipments improved: The future new orders index increased 3 points, while the future shipments index increased 2 points. The future employment diffusion index increased 6 points to 40.4. Forty-five percent of the firms expect to increase employment over the next six months. Over 44 percent of the responding firms expect to increase capital spending over the next six months, with the future capital spending index increasing 4 points in February, its highest reading since April 1984. Summary The February Manufacturing Business Outlook Survey indicates continued growth in regional manufacturing this month. The demand for manufactured goods, as reflected in new orders, showed improvement this month, and more firms added to their payrolls. The firms reported more widespread price increases for purchased inputs this month. In special questions this month, the firms’ forecast for their own price changes for the next year edged higher compared with their forecast three months ago. The indicators reflecting the firms’ overall expectations for manufacturing conditions over the next six months remained at high levels. The firms’ expectations for future employment and capital spending showed notable improvement this month. Special Questions (February 2018) Over the next year (2018:Q1 to 2019:Q1), please list your expected annual percent change with respect to the following: Current Previous Forecast Forecast (November 2017) 1. For your firm: Prices your firm will receive (for its own goods and services sold). 3.0 2.0 Compensation your firm will pay per employee (for wages and benefits). 3.0 3.0 2. For your employees: Prices your employees will pay (for goods and services where they live). 2.5 2.0 3. For U.S. consumers: Prices U.S. consumers will pay (for goods and services). 2.5 2.0 For the next 10 years (2018 through 2027), what is your expected annual average percent change with respect to the following: 4. For U.S. consumers: Prices U.S. consumers will pay (for goods and services). 3.0 2.5 The numbers represent medians of the individual forecasts (as percent changes). The forecasts are over the next year for questions 1 to 3 and an annual average for the next 10 years for question 4. Summary of Returns February 2018 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 22.2 40.7 42.8 14.9 25.8 42.2 55.4 26.5 14.2 41.2 Conditions New Orders 10.1 41.4 41.7 16.9 24.5 46.2 62.1 24.8 13.0 49.1 Shipments 30.3 33.4 48.8 17.9 15.5 49.4 64.8 21.9 13.1 51.7 Unfilled Orders -1.8 25.8 62.9 11.3 14.5 8.2 31.0 56.4 12.2 18.8 Delivery Times 6.1 16.1 72.3 11.6 4.5 3.8 26.8 63.0 10.2 16.6 Inventories 9.4 18.5 59.7 19.4 -0.9 12.8 40.3 45.1 12.8 27.5 Prices Paid 32.9 46.2 52.7 1.1 45.0 54.2 67.9 29.5 2.6 65.2 Prices Received 25.1 25.2 73.3 1.2 23.9 44.1 49.9 49.0 0.4 49.5 Number of Emp. 16.8 30.3 63.9 5.1 25.2 34.9 44.8 47.8 4.3 40.4 Avg. Emp. Wrkwk. 16.7 24.4 64.9 10.7 13.7 10.6 25.9 60.0 11.2 14.7 Capital Ex. -- -- -- -- -- 36.2 44.4 47.6 4.0 40.4 Notes: (1) Diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. (2) All data are seasonally adjusted. (3) Percentages may not sum to 100 percent because of rounding, omission by respondents, or both. (4) Survey results reflect data received through February 12, 2018. Federal Reserve Bank of Philadelphia Manufacturing Business Outlook Survey Released: February 15, 2018, at 8:30 a.m. ET. January 2018 Economic growth continued in January, according to the firms responding to this month’s Manufacturing Business Outlook Survey. The broadest measures of current conditions remained positive this month, although indexes for general activity, new orders, and employment declined from their readings in December. The firms reported higher prices for both inputs and their own manufactured goods this month. The future indexes reflecting expected growth over the next six months remained at high levels, although the indexes fell from their readings in December. Current Indicators Show Continued Growth The index for current manufacturing activity in the region decreased from a revised reading of 27.9 in December to 22.2 this month.* Although now at its lowest reading in five months, the index has stayed within a relatively narrow range over the past eight months. The other broad indicators continue to suggest overall growth. The shipments index remained at a high reading and increased 6 points. The index for current new orders, however, decreased 18 points. Nearly 36 percent of the firms reported an increase in new orders this month, but 26 percent reported declines. Both the delivery times and unfilled orders indexes decreased this month: The unfilled orders index was negative for the first time in 16 months, and the index of delivery times fell to its lowest reading in 10 months. The firms reported an increase in manufacturing employment this month. The current employment index, while still positive, fell 3 points to 16.8. The percentage of firms reporting an increase in employment (24 percent) exceeded the percentage reporting a decrease (8 percent). The firms reported a slight increase in work hours this month: The average workweek index increased 4 points to 16.7. Firms Report Price Increases Price increases were more widespread this month. On the cost side, nearly 33 percent of the firms reported increases in the prices paid for inputs; no firms reported paying lower prices. The prices paid index edged 5 points higher. With respect to prices received for firms’ own manufactured goods, 27 percent of the firms reported higher prices, while only 2 percent reported lower prices. The prices received index increased 13 points to its highest reading in 12 months. Future Indexes Decline The diffusion index for future general activity decreased from a revised reading of 52.7 in December to 42.2 this month. Over 50 percent of the firms expect increases in activity over the next six months, but only 8 percent expect decreases. The indexes for future new orders and shipments also showed moderation this month, decreasing 13 points and 2 points, respectively. The firms’ forecasts for employment increases remained nearly steady. Over 40 percent of the firms expect increases in employment over the next six months, and the future employment diffusion index decreased just 1 point. Firms Expect to Increase Production to Meet Rising Demand In Special Questions, the firms were asked to characterize current demand and production of their manufactured products over the past few months and to forecast their production increases for the first quarter of the year. Most firms (72 percent) reported an increase in underlying demand; 12 percent characterized underlying demand as increasing significantly, while 60 percent characterized it as increasing modestly. Nearly 70 percent of the firms anticipate increasing production in the first quarter, although 22 percent expect decreases. Summary Responses to the January Manufacturing Business Outlook Survey suggest continued growth for the region’s manufacturing sector. The indexes for general activity, new orders, and employment all fell from their December levels but continued to indicate overall growth. The firms reported an increase in both input prices and prices for their own products this month. The firms remain optimistic about growth over the next six months, but all of the survey’s broad future indicators decreased this month. * The survey’s annual historical revisions, which incorporate new seasonal adjustment factors, were released on January 11, 2018. The full set of revised historical data is available at www.philadelphiafed.org/mbos-histrev2018. Special Questions (January 2018) 1. Over the past several months, how would you characterize the underlying demand for your manufactured products? Exclude any purely seasonal effects. Increase significantly 11.7% Increase modestly 60.0% Total increase 71.7% No change 16.7% Decrease modestly 10.0% Decrease significantly 1.7% Total decrease 11.7% 2. How will your firm’s total production for the first quarter compare with that of the last quarter? Increase of more than 6% 16.9% Increase of 4-6% 11.9% Increase of 2-4% 28.8% Increase of less than 2% 11.9% Total increase 69.5% No change 8.5% Decrease of less than 2% 3.4% Decrease of 2-4% 3.4% Decrease of 4-6% 5.1% Decrease of more than 6% 10.1% Total decrease 22.0% Summary of Returns January 2018 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 Business 27.9 34.2 51.7 12.0 22.2 52.7 50.1 34.7 7.9 42.2 Conditions New Orders 28.2 35.6 39.0 25.5 10.1 59.0 53.6 32.0 7.4 46.2 Shipments 23.9 44.4 40.3 14.1 30.3 51.8 57.0 29.0 7.6 49.4 Unfilled Orders 12.8 14.1 69.9 15.9 -1.8 12.4 22.2 56.8 14.0 8.2 Delivery Times 11.0 14.1 77.1 8.0 6.1 -2.2 18.7 60.6 14.9 3.8 Inventories -1.1 25.8 53.2 16.4 9.4 29.7 33.1 40.9 20.3 12.8 Prices Paid 27.8 32.9 67.1 0.0 32.9 56.0 54.6 41.1 0.4 54.2 Prices Received 12.6 26.8 71.5 1.7 25.1 39.4 45.6 47.8 1.4 44.1 Number of Emp. 19.7 24.4 67.2 7.6 16.8 36.1 40.3 49.5 5.3 34.9 Avg. Emp. Wrkwk. 12.6 26.9 63.0 10.2 16.7 18.5 20.6 62.9 9.9 10.6 Capital Ex. -- -- -- -- -- 38.5 40.2 50.4 4.0 36.2 Notes: (1) Diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. (2) All data are seasonally adjusted. (3) Percentages may not sum to 100 percent because of rounding, omission by respondents, or both. (4) Survey results reflect data received through January 15, 2018. Federal Reserve Bank of Philadelphia Manufacturing Business Outlook Survey Released: January 18, 2018, at 8:30 a.m. ET.