Business Outlook Survey

October 2007

Activity in the region's manufacturing sector continued to expand in October but
at a somewhat slower pace than in September. Indicators for general activity and
new orders remained positive but fell from their readings last month. Overall
employment was reported higher. Significantly more firms reported a rise in
prices for inputs, and price increases for finished goods were more widespread
this month. Also this month, the region's manufacturing executives were, on
balance, more optimistic about future activity than they were in September.

The survey's broadest measure of manufacturing conditions, the diffusion index
of current activity, decreased from 10.9 in September to 6.8 this month (see
Chart). Fifty-two percent of the firms reported no change in activity from
September, but the percentage of firms reporting increases (27 percent) remained
greater than the percentage reporting decreases (21 percent). Other broad
indicators suggested some slower growth this month. Demand for manufactured
goods, as represented by the survey's new orders index, slipped this month; the
index decreased 12 points but remained positive. The current shipments index
fell 21 points, however, and moved below zero for the first time since September
2006.

A slowing in manufacturing is not evident in replies about employment and hours
worked this month. The percentage of firms reporting an increase in employment
(26 percent) was higher than the percentage reporting a decrease (13 percent),
and the current employment index increased five points from its September
reading. The average workweek index remained positive but edged seven points
lower.

Price Pressures Are Greater This Month

A larger percentage of firms reported higher prices for inputs this month: 46
percent of the firms reported higher input prices this month compared to 30
percent in September. The prices paid index jumped 17 points and has now
increased for two consecutive months.

The prices received index increased nine points. Although 66 percent of the
firms reported steady prices for their own manufactured goods, 23 percent
reported higher prices, and 11 percent reported lower prices.

Six-Month Forecasts Remain Optimistic

Expectations for manufacturing growth over the next six months showed some
improvement this month. The future general activity index, at 41.5, is six
points higher than in September and is now at its highest level since November
2004 (see Chart). The index for future new orders held steady this month, but
the future shipments index decreased seven points. The future employment index
edged two points higher. Forty-two percent of the firms expect to increase
employment over the next six months; 15 percent expect decreases.

In special questions this month, firms were asked if recent changes in financial
conditions had influenced planned spending on new plant and equipment over the
next six to 12 months relative to the past six to 12 months (see Special
Questions). Although two-thirds of the firms indicated no revisions in plans, 12
percent indicated substantial downward revision in planned spending, 13 percent
indicated a small downward revision, and only 1 percent expected substantial
upward revision.

With regard to their actual plans, nearly 32 percent of the firms said they plan
to increase capital spending over the next six to 12 months - somewhat lower
than the percentage at the beginning of this year (40 percent), when the same
question was posed. Twenty-six percent said they plan to decrease spending, up
slightly from 22 percent at the beginning of the year.


Summary

Indicators of current activity suggest continued growth of the region's
manufacturing sector, although at a slightly slower rate than in September. Most
current indicators suggest slower growth. Indexes for general activity, new
orders, and employment all remained positive, although the shipments index fell
significantly from September. A significantly larger percentage of firms
reported higher costs this month, but half as many firms reported higher prices
for manufactured goods. Despite weakening in some current indicators,
manufacturing executives remained optimistic about growth over the next six
months.

Summary of Results Table | Chart of General Activity

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