January 2009 Conditions in the region’s manufacturing sector continued to be depressed this month, according to firms polled for the January Business Outlook Survey. All of the survey’s broad indicators for current activity remained negative, although some rose from the extremely low levels they had reached during the past few months. Employment losses, however, were reported to be more substantial. Firms continued to report declines in input prices and prices for their own manufactured goods. Most of the survey’s indicators of future activity improved, suggesting that the region’s manufacturing executives expect declines to bottom out over the next six months. Indicators Show Continued Declines The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, remained negative, although it improved from a revised reading of -36.1 in December to -24.3 this month.* The index has been negative for 13 of the past 14 months, corresponding to the current recession (see Chart). A similar pattern of continued weakness was evident in most other broad indicators. The survey’s new orders index remained very low, although it increased six points, to -22.3. Following an eight-year low reading in December, the survey’s shipments index remained negative but improved 13 points. Indexes for unfilled orders and delivery times remained significantly negative this month and edged slightly lower, suggesting continued weakness. The current employment index fell for the fourth consecutive month, dropping 10 points, to its second lowest reading since the survey began in 1968. The percentage of firms reporting a decrease in employment (48 percent) was greater than the percentage reporting an increase (9 percent). The average workweek index remained very low and virtually unchanged at -30.3. Prices Continue to Decline Consistent with overall weakness, firms reported widespread downward price pressures again this month. Thirty-eight percent of the firms reported paying lower prices for inputs; only 11 percent reported paying higher prices. The prices paid index edged slightly lower, to a record low of -27.0. Thirty-four percent of the firms reported lower prices for their own manufactured goods; 7 percent reported higher prices. The prices received index increased seven points, rising to -26.2 from a record low in December. Six-Month Indicators Deteriorate Area manufacturers’ expectations for future conditions improved this month, following three months of decline. The future general activity index increased from -10.4 in December to 7.4 this month, its first positive reading since September 2008 (see Chart). The indexes for future new orders and shipments also returned to positive territory this month, increasing 16 points and five points, respectively. On balance, firms still expect decreases in employment over the next six months: The future employment index fell two points and has been negative for four consecutive months. The future workweek index increased eight points but remained negative for the fourth consecutive month. In this month’s special questions, manufacturers were asked about problems related to the recent disorder in credit markets (see Special Questions). Firms were also asked about the impact of credit constraints on their production and inventories and about their planned capital spending over the next six to 12 months. Nearly 12 percent of the firms polled indicated that they had experienced problems obtaining credit to finance ongoing activities since October (14 percent reported problems obtaining credit in October when the same questions were asked). However, a larger percentage of firms (38 percent) indicated that their customers were having such problems. Twenty percent of the firms said the credit-related problems had affected their own levels of production, and 7 percent reported that adverse conditions had influenced inventory levels. Firms were also asked if changes in financial conditions had prompted them to revise planned spending on plant or equipment over the next six to 12 months. Forty-one percent of the firms said they had revised their plans substantially downward (only 14 percent indicated substantial reductions in October). The number of firms that attributed the changes to low expected growth of sales and low capacity utilization was significantly higher than in October. Summary According to respondents to the January survey, manufacturing in the region experienced continuing declines this month. However, indicators for general activity, new orders, and shipments suggested that the weakening was less severe than in December. Respondents reported continued declines in employment. Firms also reported lower prices for inputs and for their own manufactured products in January. Some indicators for future business conditions improved from their low readings over the past several months, suggesting that the region’s manufacturing executives expect some improvement in conditions during the first half of this year. However, firms expect employment losses to continue over the next six months. * The survey’s annual historical revisions, which incorporate new seasonal adjustment factors, were released on Thursday, January 8, 2009. Revisions for selected series from 2004 to 2008 are listed on pages 3-4 of this release. The full set of revised historical data is available at: http://philadelphiafed.org/research-and-data/regional-economy/business-outlook-s urvey/historical-data/revisions/historical-revisions-2009.cfm. Released: January 15, 2009, 10:00 a.m. ET The February Business Outlook Survey will be released on Thursday, February 19, at 10 a.m. ET. Special Questions (January 2009) 1. Since October, have either your firm or your customers experienced problems obtaining credit to finance ongoing activities? January 2009 October 2008 Your firm Your customers Your firm Your customers Yes 11.8% 37.6% 13.8% 29.9% No 80.0% 22.4% 77.7% 30.9% No response 8.2% 40.0% 8.5% 39.2% Total 100.0% 100.0% 100.0% 100.0% 2. If yes, have the problems affected levels of your own production or inventories? January 2009 October 2008 Production 20.0% 18.1% Inventories 7.1% 6.4% Other 7.1% 3.2% 3. Have recent changes in financial conditions prompted your firm to revise its planned spending on new plant or equipment over the next six to 12 months?* January 2009 October 2008 Substantial downward revision 41.3% 14.5% Small downward revision 27.5% 27.8% No change 26.2% 46.4% Small upward revision 2.5% 4.1% Substantial upward revision 2.5% 3.1% * In January 2009, firms were also asked if some projects were delayed until later in the year (16.5%) and/or some projects postponed indefinitely (10.6%). 4. If your firm plans to decrease spending on new plant and equipment, what are the major factors behind your plan?** January 2009 October 2008 Expected growth of sales is low 54.1% 46.4% Capacity utilization is currently low 50.6% 33.0% Limited need to replace information technology 23.5% 16.5% Limited need to replace other capital goods 32.9% 25.8% Cost or availability of credit 7.1% 13.4% Firm’s cash flow or balance sheet position has not improved 30.6% 17.5% Outsourcing 1.2% 2.1% Other factors 8.2% 6.2% **These numbers may not add to 100% since respondents can check more than one option January 2009 Summary of Returns 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 -36.1 18.6 34.8 42.9 -24.3 -10.4 34.6 31.0 27.2 7.4 Conditions New Orders -28.2 20.4 36.9 42.7 -22.3 -4.1 38.2 29.0 26.8 11.4 Shipments -29.7 21.3 37.5 37.9 -16.7 -1.0 35.7 28.0 31.9 3.9 Unfilled Orders -30.4 9.6 47.8 40.7 -31.1 -14.2 17.3 49.0 29.3 -12.0 Delivery Times -22.7 6.8 58.5 33.3 -26.5 -19.3 7.8 65.4 22.4 -14.7 Inventories -33.7 14.9 34.7 49.5 -34.6 -46.0 13.8 43.3 37.4 -23.6 Prices Paid -25.5 11.1 50.8 38.1 -27.0 -20.5 24.8 48.0 21.2 3.7 Prices Received -32.8 7.4 57.3 33.6 -26.2 -14.8 14.2 54.7 23.9 -9.7 Number of Emp. -28.6 8.9 42.3 47.8 -39.0 -27.6 7.4 51.9 36.7 -29.3 Avg. Emp. Wrkwk -31.6 3.9 56.2 34.2 -30.3 -21.4 12.3 53.9 25.3 -13.0 Capital Ex. -- -- -- -- -- -18.4 14.3 41.2 30.7 -16.4 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 January 13, 2009 Business Outlook Survey Selected Revised Diffusion Indexes (2004 - 2008) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Current General Activity 2004 36.5 28 29.5 31.7 29.2 30.7 34.7 24.9 19.4 26.7 19.1 25.5 2005 15.1 21 14.7 24.6 9.3 -1.2 8.1 11.2 6.8 4.6 10.2 12.4 2006 8.9 14.2 13.8 13.6 13.5 11.8 4 12.5 -0.7 1.8 4.6 -2.3 2007 12.5 1.4 1.5 2.6 3.7 17.3 6.3 -1.1 7.6 6.6 7.3 -5.4 2008 -12 -22.6 -15.9 -21.1 -16.3 -17.7 -16.7 -20.1 1.9 -38.7 -39.8 -36.1 Current New Orders 2004 33.1 27.3 26.1 25.5 22.8 28.6 35.3 18.9 26.3 20.2 22.1 20.6 2005 11.2 14 15.6 20.1 15.4 4.9 5.7 14 -1.6 20.2 14.9 6.9 2006 13.5 15.6 21.6 13.3 1 17.5 8 10.4 -3.6 11.6 1.3 -1.8 2007 4.3 3.2 2.6 4.8 5.2 18.5 9.3 3.6 11 3.9 6.7 9.7 2008 -12.5 -9.1 -8.2 -15.2 -6 -13 -12.8 -15.2 3.8 -30.6 -29.3 -28.2 Current Shipments 2004 29.9 19.5 25.8 28.2 26.5 32 39.5 30.3 26.2 26 20.4 21.9 2005 16.4 22.8 16.1 30.1 18.5 11.3 11.6 13.7 13.6 20.4 22.3 3 2006 18.6 24.5 24 19.5 13.1 20.7 10.6 19 -8.3 8.5 8.7 11.3 2007 23.3 3.3 7.7 6.5 8.1 7.9 20.5 10.3 11.4 -0.5 5.7 15.4 2008 -1.7 -10.3 -5.5 -6.2 0.5 -5.9 -6 -6.1 -1.3 -17.6 -19.3 -29.7 Current Unfilled Orders 2004 11.4 6.8 10.4 1.2 10.4 12.5 16.7 0.8 3.9 -1.7 -1.3 2.9 2005 -4.1 -2.7 0 -2.9 -3.6 -16.6 -10.2 2.7-10.4 -2.1 -7.4 0.8 2006 0.9 8.6 8.7 6.3 -2.7 -1.3 -8.7 -4.3 -6.8 -9 -4.3 -18.1 2007 -14.7 -12.2 -15.4 -13.2 -8.9 -1.4 1.4 -5.4 -5.2 -5.8 -8.3 -3.3 2008 -6.4 -11 -14.7 -16.3 -17.9 -11.4 -18 -14.8-14.1 -26.5 -28.1 -30.4 Current Delivery Times 2004 -0.5 4.5 16.3 0.3 9 7.4 15.1 -7.1 4.1 1.9 -4.8 1.2 2005 -2.5 4 2.6 4.6 0.1 -10.6 -1.8 -0.8 -1.6 -0.5 6.5 0.3 2006 7.5 6.9 4.7 -2.4 9.3 0.7 -2 0.4 -1.2 -5.1 2.3 -6 2007 -7.8 -6.3 -10.5 -11.3 -7.8 -2.8 -1.7 -3.2 -8.2 1.3 -11.9 -2.3 2008 -4.3 -5.8 -7.4 2.7 -12.8 -7.3 -10.8 -10.7 -7.9 -19.3 -20.7 -22.7 Current Inventories 2004 -2.9 3.7 -7.9 7.4 7.2 15.6 4.8 2.2 -0.2 1 -3.1 -5.4 2005 -4 -4.8 -1.3 1.1 0.7 0.6 -8.9 -7.5 -2.7 -2.5 1.3 2.2 2006 6.2 10.2 12.7 -7.8 -3 -1.3 0 7 2 10.5 2.2 -3.1 2007 -0.3 -0.7 -2.6 -0.5 -4.2 -5.4 0.4 -5.2 0.9 -15.7 -0.9 -9.1 2008 -11.4-11.5 -12.8 -22.8 -11.8 -10.1 -9.2 -9.9-23.9 -22.9 -20.3 -33.7 Current Prices Paid 2004 33.7 44.7 54 50.9 55.7 53.9 51.9 55.8 54.8 55.1 51.7 52.3 2005 62.3 47.2 35.7 51 29.1 25.3 27.8 26.6 50.9 23.6 53.1 49 2006 42.9 35.7 25.7 32.6 52.1 44.3 45.4 43.9 38.9 30.6 24.7 23.6 2007 14.5 20.7 26.2 27.5 28.6 22.7 22.2 11.9 24.6 38.4 38 40.8 2008 49.8 49.5 53.4 53.8 52.2 63.4 71.3 53 32.5 10.2 -26.6 -25.5 Current Prices Received 2004 9.9 17.6 21 13.6 28.4 31.1 34.6 33.5 32.7 32.7 29.6 19.6 2005 23.5 23.1 18.3 27 17.4 12.5 12.3 2.7 5.9 13.3 32.8 28.5 2006 18.9 17.1 16.6 15.2 12.6 16.3 16.5 16.6 19 17.8 8.9 9.9 2007 9.5 8.3 17.9 4.8 3.8 5.6 7.2 5.7 2 12.8 21 18 2008 30.5 23.5 22.7 29.7 30.7 29.3 27.9 25.1 15.1 5 -11.3 -32.8 Current Employment 2004 15.5 12.4 14.1 12.2 22.5 19 22.6 19.5 23.4 13.7 15.2 12.7 2005 16.7 12.1 13.1 15 8.2 8.3 2.8 5 2.8 14.3 19.2 8.5 2006 10.9 11.7 8.5 18.7 2.3 7.9 12.8 4.9 8.8 8.1 3.8 9.4 2007 7 1 4.7 4.4 12 5.1 5.7 17 5.5 9.8 6 3.3 2008 -0.1 2.3 -2.8 -9.5 0.3 -7.6 -7.1 -4.6 -3.2 -19.2 -23.8 -28.6 Current Average Workweek 2004 10.5 19.3 20.7 7.3 15.5 14 12.7 8.1 9.1 5.5 5.4 17.5 2005 7 7.6 9.1 14.1 0 4.1 6.4 0.9 0.3 -1.7 13.2 5.2 2006 7 8.2 8.7 5.8 10.9 8.1 -0.5 11.4 1.9 -1.2 3.3 -2.5 2007 1.3-11.7 -2.6 3 -4.2 -0.6 2.8 12.5 7.2 4.5 2.7 7.1 2008 -14.7 -2.9 -7.9 -11.9 -5.5 -8.8 -10.6 -12.9-10.5 -19.6 -21.5 -31.6