Business Outlook Survey

August 2007

Activity in the region’s manufacturing sector was generally steady in August,
according to firms polled for this month’s Business Outlook Survey. Although the
index for general activity suggests no overall growth, indicators for new
orders, shipments, and employment suggest some growth. Firms continued to report
a rise in prices for inputs, although these cost increases were less widespread
than in previous months. The region’s manufacturing executives were somewhat
more optimistic about future activity than they were in July.

The survey’s broadest measure of manufacturing conditions, the diffusion index
of current activity, decreased from 9.2 in July to zero this month (see Chart).
Fifty-seven percent of the firms reported no change in activity from July, but
the percentage of firms reporting increases equaled the number reporting
decreases (21 percent). Other broad indicators continued to suggest growth.
Demand for manufactured goods, as represented by the survey’s new orders index,
was positive but slightly weaker this month; the index fell four points. The
current shipments index also weakened, declining eight points. Indexes for
delivery times and unfilled orders both declined this month, and now both are
slightly below zero.

Despite the moderation suggested by other broad indicators, there was marked
improvement in manufacturing employment indexes in August. While 65 percent of
the firms reported steady employment levels in August, the percentage of firms
reporting increases (27 percent) was significantly higher than the percentage
reporting decreases (6 percent). The current employment index jumped 17 points,
to its highest reading since September 2004, but most of the increase this month
is attributable to the decline in the share of firms reporting employment
decreases (from 18 percent to 6 percent). The average workweek index also
increased from zero in July to 13.1 this month.

Price Indexes Moderate This Month

Respondents continue to report higher costs for inputs this month. The prices
paid index, however, fell 13 points and has now edged lower in three consecutive
months. Twenty-nine percent of the firms reported higher input prices; 14
percent reported lower input prices. Nineteen percent of the firms reported
increases in the prices of their own manufactured goods this month; 12 percent
reported lower prices. The prices received index decreased two points.

Six-Month Forecasts Remain Optimistic

Expectations for manufacturing growth over the next six months showed
some improvement this month. The future general activity index increased from
30.4 in July to 36.2, its highest reading since November 2004 (see Chart). The
indexes for future new orders and shipments continued to reflect optimism,
although they decreased by one and six points, respectively. The future employment
index rose five points, following an increase of 20 points in July. Forty-five
percent of the firms expect to increase employment over the next six months; 10
percent expect decreased employment.

In special questions this month, manufacturing firms were asked about growth in
export business over the past year (see Special Questions). Exports as a
percent of sales have increased at 39 percent of the manufacturing firms; only 7
percent indicated that exports as a share of sales have decreased. Among the
firms that indicated that exports were growing, export growth represented about
19 percent of their sales growth. The respondents that indicated an increased
export share were predominantly firms producing for the intermediate product,
capital goods, and business product markets.

Summary

The survey’s indicator for general activity suggests no overall growth in the
region’s manufacturing sector this month. Indexes for new orders, shipments,
and employment all remained positive, however, and suggest some continuing
growth. Price indexes suggest reduced cost pressures in recent months, and in
August, the percentage of firms reporting higher prices for their own
manufactured goods was only slightly above the percentage reporting decreases.
On balance, manufacturing executives expect growth in business over the next six
months, and they continue to be more optimistic about future employment growth.

Summary of Results Table | Chart of General Activity

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