December 2005 Business Outlook Survey Activity in the region's manufacturing sector continues to expand, according to firms surveyed for this month's Business Outlook Survey. The general activity index improved modestly this month; indicators for new orders, shipments, and employment were down from their readings last month, although they remain positive. Firms continued to report rising prices for inputs, and more than one-third reported receiving higher prices for their own manufactured goods. The region's manufacturing executives were somewhat more optimistic about future growth this month than in November. Manufacturing Expansion Continues The survey's broadest measure of manufacturing conditions, the diffusion index of current activity, rose slightly, from 11.5 in November to 12.6 this month (see Chart). Thirty-five percent of the firms reported increases in activity (up 12 points from November); 23 percent reported decreases. The new orders index decreased five points but remained positive for the third consecutive month. The shipments index also remained positive but declined 14 points. Continued expansion in manufacturing is evident in replies to questions about employment and hours worked. The percentage of firms reporting increased employment (19 percent) was nearly the same as in November. The employment index, however, declined 10 points because the percentage of firms reporting lower employment rose from 1 percent to 10 percent. On balance, the workweek was higher this month: More firms reported a longer workweek than reported a shorter one (20 percent versus 15 percent). Input Price Pressures Moderate Slightly Firms reported higher production costs again this month, although price pressures moderated slightly: 50 percent reported higher input prices; however, this was down from 58 percent in November and 68 percent in October. The prices paid index remains at a high level but fell eight points. Higher prices for final manufactured goods remained relatively widespread again this month: 35 percent of the firms reported higher prices for their goods, the same as in the previous month. The prices received index, at 30.5, was down two points from November. Six-Month Forecasts Improve Expectations for future manufacturing growth showed improvement again this month. The index for future activity increased from 29.2 in November to 39.0 this month, the highest reading in 12 months (see Chart). Other broad indicators of future growth showed similar increases: The future new orders index increased six points and the future shipments index increased five points. The future employment index rose notably this month (13 points): About 7 percent of firms expect to decrease payrolls but nearly five times as many anticipate increasing them (32 percent). In a special question this month, firms were asked about planned capital spending for the upcoming year (see Special Question). For all of the categories of capital spending, more firms predicted higher expenditures next year than predicted lower. The largest percentage of the firms indicated increased spending for noncomputer equipment (38 percent) and for energy-saving investments (35 percent). Summary The survey continues to reflect growth in the region's manufacturing sector. Indicators for shipments, new orders, and employment remained positive but declined somewhat this month. Firms continued to report higher prices for inputs and manufactured goods, although a slight moderation in cost pressures was evident. Firms expect continued growth in their business over the next six months, and almost one-third said they will increase employment. _________ SPECIAL NOTE: The survey's annual historical revisions, which incorporate new seasonal adjustment factors, will be released on Thursday, January 12, 2006, at noon E.T. The information will be made available at: http://www.PhiladelphiaFed.org/research-and-data/regional-economy/business-outlook-survey/boshistory.html SPECIAL QUESTION (December 2005) Do you expect the following 2006 capital expenditure categories to be higher than, lower than, or the same as the current year: %Higher % Same % Lower % No Response % Total% Non-computer equipment 37.8% 31.1% 25.7% 5.4% 100.0 Energy-saving investments 35.1% 47.3% 9.5% 8.1% 100.0 Software 29.7% 41.9% 21.6% 6.8% 100.0 Computers and related hardware 28.4% 51.3% 14.9% 5.4% 100.0 Structures 24.3% 47.3% 21.6% 6.8% 100.0 December 2005 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 Busines 11.5 35.1 41.7 22.6 12.6 | 29.2 46.3 44.2 7.3 39.0 Conditions | | New Orders 12.7 33.0 40.8 24.8 8.2 | 38.1 51.7 34.9 8.1 43.7 | Shipments 23.4 31.9 45.1 22.9 9.0 | 33.5 49.7 32.3 11.6 38.1 | Unfilled Orders -7.8 22.4 53.3 21.3 1.2 | 10.6 25.0 55.6 13.1 11.9 | Delivery Times 9.0 16.5 63.1 18.9 -2.4 | 5.5 11.9 63.7 15.4 -3.6 | Inventories -0.1 27.3 47.1 24.3 2.9 | -2.1 28.7 47.1 16.8 11.9 | Prices Paid 56.8 49.5 47.2 0.5 49.0 | 57.5 55.5 31.9 7.4 48.1 | Prices Received 32.5 34.5 60.6 4.0 30.5 | 42.6 39.2 48.1 5.5 33.7 | Number of Emp. 19.1 19.0 68.6 9.7 9.4 | 12.3 31.8 54.5 6.6 25.1 | Avg. Emp. Wrkwk 8.7 19.8 63.2 15.0 4.8 | 11.8 19.1 64.8 9.8 9.3 | Capital Ex. -- -- -- -- -- | 24.2 28.8 32.4 12.3 16.6 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 results reflect data received through December 13, 2005. November 2005 Activity in the region's manufacturing sector continues to expand, according to firms surveyed for this month's Business Outlook Survey. Although indicators for general activity and new orders fell from their October readings, they remain near their average levels this year. Firms continued to report rising prices for inputs, and more than one-third reported receiving higher prices for their own manufactured goods. The region's manufacturing executives were somewhat more optimistic about future growth this month than in October. Current Activity Indexes Suggest Continued Growth The survey's broadest measure of manufacturing conditions, the diffusion index of current activity, decreased from 17.3 in October to 11.5 this month (see Chart). Twenty-three percent of the firms reported increases in activity (down six points from October); 12 percent reported decreases. The new orders index also had a six-point decline this month. Nearly 32 percent of the firms, however, reported increases in new orders. The shipments index rose four points. On balance, unfilled orders declined slightly, but delivery times continued to lengthen. Continued expansion in manufacturing is evident in replies to questions about employment and hours worked. The percentage of firms reporting increased employment (20 percent) was higher than that of firms reporting lower employment (1 percent). The current employment index rose two points. On balance, the workweek was higher this month: more firms reported a longer workweek (18 percent) than a shorter one (10 percent). Higher Prices Reported Firms reported higher production costs again this month: 58 percent reported higher input prices; however, this was down from 68 percent in October. The prices paid index remains at a high level but fell 11 points. Higher prices for final manufactured goods were also widespread again this month: 35 percent of the firms reported higher prices for their goods, up slightly from 33 percent last month. The prices received index, at 32.5, was virtually unchanged from October. Expectations regarding future price increases remain elevated: 59 percent of the firms expect input price increases over the next six months; 45 percent expect increases in prices of their own manufactured goods. Six-Month Forecasts Improve Expectations for future manufacturing growth showed improvement this month. The index for future activity increased from 22.0 in October to 29.2 this month, the highest reading in three months (see Chart). Other broad indicators of future growth showed similar increases: the future new orders index increased nine points and the future shipments index increased seven points. The future employment index increased slightly from October: more than twice as many firms anticipate increasing payrolls (25 percent) as expect to decrease them (12 percent). The future workweek index rose eight points. In a special question this month, firms were asked about their expectations of percentage changes in costs by category for 2006 (see Special Question). The greatest increases in expected costs are for energy: 38 percent of the firms expect energy cost increases of more than 10 percent next year; 37 percent expect increases of between 5 and 10 percent. Seventy-nine percent of the firms expect raw material costs to increase next year; half expect a rise of more than 5 percent. Eighty-seven percent expect wages to increase less than 5 percent. Nearly 80 percent expect health benefit costs to rise more than 5 percent; 33 percent expect a rise of more than 10 percent. Summary Indicators continue to reflect growth in the manufacturing sector. Indexes for general activity and new orders remained positive but declined slightly this month. Indexes for shipments and number of employees increased from their readings in October. Responses from this month's survey suggest that input price pressures continued this month, and over one-third of the firms reported higher prices for their final manufactured goods. Firms expect continued growth in their businesses over the next six months, with one-fourth indicating that they will increase employment. Special Question (November 2005) What percentage change in costs do you expect for the following categories in 2006? Energy Other Raw Intermediate Wages Health Non- Materials Goods Benefits Health Benefits Increase more than 10% 38.1 8.3 4.9 0.0 32.9 2.4 Increase 5-10% 36.9 41.7 23.5 1.2 47.1 16.6 Increase less than 5% 7.1 28.6 42.0 87.0 12.9 39.3 Stay at current levels 5.9 14.2 27.2 9.4 3.5 39.3 Decline less than 5% 3.6 3.6 1.2 1.2 2.4 2.4 Decline 5-10% 4.8 2.4 1.2 1.2 0.0 0.0 Decline more than 10% 3.6 1.2 0.0 0.0 1.2 0.0 Total 100.0 100.0 100.0 100.0 100.0 100.0 November 2005 Summary of Returns 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 Busines 17.3 23.3 64.9 11.8 11.5 | 22.0 39.7 43.8 10.6 29.2 Conditions | | New Orders 18.6 31.9 48.7 19.2 12.7 | 29.5 51.1 29.5 13.0 38.1 Shipments 19.5 36.1 49.7 12.8 23.4 | 26.8 47.1 35.3 13.5 33.5 Unfilled Orders 0.8 19.6 51.8 27.4 -7.8 | 1.7 24.1 55.7 13.5 10.6 Delivery Times 9.6 20.9 67.2 11.9 9.0 | 5.0 16.2 68.5 10.7 5.5 Inventories -4.5 15.4 67.8 15.6 -0.1 | -2.5 19.9 51.3 21.9 -2.1 Prices Paid 67.6 58.1 39.4 1.2 56.8 | 61.0 59.4 33.5 1.9 57.6 Prices Received 32.6 34.8 63.0 2.3 32.5 | 49.3 45.2 49.6 2.6 42.6 Number of Emp. 17.0 20.3 78.6 1.1 19.1 | 11.3 24.7 57.1 12.3 12.3 Avg. Emp. Wrkwk 11.0 18.2 70.3 9.5 8.7 | 4.0 23.2 59.4 11.3 11.8 Capital Ex. -- -- -- -- -- | 18.1 27.9 49.1 3.7 24.2 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 results reflect data received through November 14, 2005. October 2005 The pace of activity in the region's manufacturing sector picked up in October, according to firms polled for this month's survey. Indicators for general activity, shipments, new orders, and employment all improved from their readings in September. Firms continued to report a rise in prices for inputs, and more firms reported receiving higher prices for their own manufactured goods. Expectations for future growth recovered from the low readings recorded last month just after Hurricane Katrina hit the Gulf Coast. Current Indicators Rebound The survey's broadest measure of manufacturing conditions, the diffusion index of current activity, increased from 2.2 in September to 17.3 this month. The 15-point rise returns the index close to its level in August (see Chart). All of the other broad indicators improved substantially this month, alleviating concern about a pause in growth. The new orders index increased from a 29-month low of -0.5 in September, to 18.6 this month. The current shipments index rose six points. Both the unfilled orders and delivery time indexes were positive, following negative readings in September. On balance, more firms said inventories were lower this month than said they were higher. The improvement in manufacturing activity is also evident in replies to questions about employment and hours worked. The current employment index rose 14 points, and the percentage of firms reporting increases in employment edged higher. The workweek index rebounded from a reading of 1.2 in September to 11.1 this month. Higher Prices Reported Firms continued to report higher production costs this month. The current prices paid index rose 15 points, following an increase of 27 points in September, and is now at its highest reading since November 1980. Sixty-eight percent of the manufacturers reported higher prices for inputs, up from 57 percent last month. No firms reported declines in input prices. Higher prices for final manufactured goods were also more widespread this month, suggesting that higher costs have been passed on to customers. Thirty-three percent of the firms reported higher prices for their goods, compared to 22 percent last month. The prices received index rose 24 points to its highest reading in 12 months. Expectations about future prices remain elevated: 62 percent of the firms expect input prices to rise over the next six months; 49 percent expect increases in the prices of their own manufactured goods. Six-Month Indicators Also Rebound Overall expectations for the next six months rebounded in October, after falling sharply in September. The future general activity index rose from 7.0 to 22.0. The 15-point increase recovered some of the 26-point drop in September (see Chart). Other broad future indicators showed similar improvement: the future new orders index rose 17 points, and the future shipments index was up 16 points. Firms' outlook for future employment held relatively steady this month, although businesses were more optimistic about expanding the work hours of existing employees. The future employment index, at 11.3, was virtually unchanged from September. Nineteen percent of the firms expect increases in employment over the next six months; 8 percent expect decreases. On balance, firms expect the average workweek to improve: the future workweek index increased eight points. In a special question this month, firms were asked about the impact of the Gulf Coast hurricanes on their manufacturing business (see Special Questions). Half the firms said they had not experienced a change in demand for their products or other related problems, and half said there had been some effect. Among those that reported some effect, the percentage citing an increase in demand (20 percent) was slightly higher than that citing a decrease (16 percent). A relatively small percentage of firms, however, indicated that the change in demand was significant (only 1.2 percent experienced a significant increase in demand; 2.3 percent experienced a significant decrease in demand). The most commonly cited post-hurricane effects were supply-related difficulties: transportation problems were cited by 28 percent of all firms; problems obtaining raw materials, by 21 percent; and problems obtaining energy products, by 13 percent. Summary Indicators of current activity point to an expansion of the region's manufacturing sectors following little to no growth in the previous month. Indicators for general activity, new orders, shipments, and employment all increased from their September readings. Firms continue to report higher prices for inputs, and more firms reported higher prices for their final manufactured goods. A sizable proportion of the region's manufacturing firms indicated that they were affected by the Gulf Coast disasters, including some disruptions in transportation and deliveries of materials. Expectations for growth over the next six months recovered from steep declines in September but remain somewhat below average levels for the year. Special Questions (October 2005) 1. Have you experienced any change in demand or problems as a result of the Gulf Coast hurricanes? Yes 50.0% No 50.0% Total 100.0% If yes, check any that apply: % % % % % of slight moderate significant total respondents Increase in demand 12.8 5.8 1.2 19.8% Decrease in demand 8.1 5.8 2.3 16.2% Other Effects: Transportation problems 2.3 15.1 10.4 27.8% Problems obtaining other materials 3.5 11.6 5.8 20.9% Problems obtaining energy products 3.5 4.7 4.7 12.9% October 2005 Summary of Returns 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 Busines 2.2 28.6 60.1 11.3 17.3 | 7.0 39.2 36.5 17.2 22.0 Conditions | | New Orders -0.5 33.0 50.9 14.4 18.6 | 12.5 45.4 35.4 15.9 29.5 | Shipments 13.2 29.0 60.4 9.5 19.5 | 10.4 44.7 34.3 17.9 26.8 | Unfilled Orders -10.9 15.4 70.0 14.6 0.8 | -5.7 17.5 61.9 15.9 1.7 | Delivery Times -2.4 17.6 74.4 8.0 9.6 | -6.5 19.7 60.3 14.7 5.0 | Inventories 1.4 14.8 65.8 19.3 -4.5 | -1.5 24.5 41.5 27.1 -2.5 | Prices Paid 52.7 67.6 32.4 0.0 67.6 | 69.8 61.8 31.2 0.8 61.0 | Prices Received 8.6 32.6 67.4 0.0 32.6 | 36.2 49.3 44.9 0.0 49.3 | Number of Emp. 2.7 19.4 78.1 2.4 17.0 | 11.4 18.9 70.6 7.6 11.3 | Avg. Emp. Wrkwk 1.2 19.3 72.5 8.2 11.1 | -4.2 14.4 67.1 10.4 4.0 | Capital Ex. -- -- -- -- -- | 12.9 21.1 47.0 3.0 18.1 Notes: (1) Items may not add to 100 percent because of omission by respondents. (2) All data are seasonally adjusted. (3) Diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. (4) Survey results reflect data received through October 17, 2005. Business Outlook Survey September 2005 The pace of activity in the region's manufacturing sector slowed in September, according to firms polled for this month's survey. Indicators for general activity and new orders fell substantially from their readings in August and suggest little to no growth this month. Shipments increased but at a slower pace, manufacturing employment and work hours were virtually steady, and firms again reported an increase in industrial prices. The region's manufacturing executives were significantly less optimistic about future activity than in August. Current Indicators Are Weaker The survey's broadest measure of manufacturing conditions, the diffusion index of current activity, fell from 17.5 to 2.2, the lowest reading in three months (see Chart). Twenty-four percent of the firms reported increases in activity this month (compared to 36 percent last month); 22 percent reported a decline. Other broad indicators also declined. The new orders index fell 20 points, recording its first negative reading since April 2003. The shipments index fell five points but remained positive at 13.2. Indicators for unfilled orders and delivery times were negative and corroborate evidence of weakness this month: the unfilled orders index fell 18 points, and the delivery times index fell three points. The moderation in manufacturing activity is evident in replies to questions about employment and hours worked. The percentage of firms reporting increased employment (15 percent) was only slightly higher than that of firms reporting lower employment (13 percent). The current employment index, which fell four points, is now at its lowest mark since September 2003. On balance, the workweek was mostly steady this month. Price Indexes Move Higher Firms reported higher production costs this month. Fifty-seven percent of the firms reported higher input prices, compared to 33 percent in August. The prices paid index rose 27 points to its highest reading since January. Higher prices for final manufactured goods were also more widespread this month than last. Twenty-two percent of the firms reported higher prices for their goods, compared to 12 percent last month, and the prices received index rose six points. Expectations about future prices were considerably higher this month. The future prices paid index rose 26 points, and the future prices received index rose six points. Six-Month Indicators Fall Significantly Overall expectations for the next six months fell sharply in September. The future general activity index fell from 33.4 in August to 7.0 this month, the lowest reading since January 2001 (see Chart). Other broad future indicators showed similar declines: the future shipments index fell 23 points, and the future new orders index fell 18 points. On balance, firms expect unfilled orders to decline modestly over the next six months and delivery times to fall somewhat. Inventories are expected to remain flat. Firms' outlook for future employment growth held relatively steady this month, although firms are less optimistic about expanding the work hours of existing employees. The future employment index declined only slightly from its reading in August: 25 percent of the firms expect employment to rise over the next six months; 14 percent expect it to fall. On balance, firms expect the average workweek to decline: the future workweek index fell 17 points and was negative for the second time in three months. In a special question this month, firms were asked about the impact of recent higher energy prices on current new orders and production as well as on planned production over the next six months (see Special Question). The largest share of firms indicated that higher energy prices have so far had only a slight negative effect on new orders (50 percent) and production (58 percent). Nearly 30 percent of the firms said that higher energy prices had a moderate negative effect on new orders; 6 percent reported a significant negative effect. Twenty-three percent said higher energy prices had a moderate negative effect on current production; 11 percent reported a significant negative effect. With regard to planned production over the next six months, 24 percent said higher energy prices would have a moderate negative effect; 18 percent said they would have a significant negative effect. Summary Overall manufacturing conditions in the region are mostly steady, and indicators for general activity, new orders, and employment suggest little or no growth this month. According to responses from this month's survey, input price pressures were greater this month, and more firms reported higher prices for final manufactured goods. Most broad indicators fell notably in September, and a sizable share of firms indicated that energy costs will adversely affect production over the next six months. Special Question (September 2005) What has been the effect of recent higher energy prices on your firm's current new orders and production, and on planned production for the next six months? Current Current Planned Production for New Orders Production the next six months Slightly negative effect 50.0% 58.1% 49.2% Moderately negative effect 29.7% 22.6% 23.8% Significantly negative effect 6.2% 11.3% 17.5% Positive effect 14.1% 8.0% 9.5% Total 100.0% 100.0% 100.0% Summary of Returns September 2005 September vs. August Six Months from now vs. Sept. | | Prev. | Prev. Diff. Inc. No ch. Dec. Diff. | Diff. Inc. No ch. Dec. Diff. Index Index | Index Index | General Business 17.5 24.4 50.6 22.2 2.2 | 33.4 32.6 40.6 25.6 7.0 Conditions | | New Orders 19.8 24.9 46.7 25.4 -0.5 | 30.5 35.0 39.8 22.4 12.5 | Shipments 17.8 31.3 50.3 18.1 13.2 | 32.9 36.0 34.4 25.6 10.4 | Unfilled Orders 7.2 14.8 59.2 25.8 -10.9 | -1.3 17.5 57.1 23.2 -5.7 | Delivery Times 0.9 9.7 78.2 12.1 -2.4 | -8.3 10.8 69.7 17.3 -6.5 | Inventories -7.3 23.3 54.9 21.8 1.4 | -7.6 22.9 49.1 24.5 -1.5 | Prices Paid 25.9 57.3 36.2 4.5 52.7 | 43.6 72.6 23.4 2.8 69.8 | Prices Received 3 21.7 64.7 13.1 8.6 | 30.1 44.5 47.1 8.3 36.2 | Number of Emp. 6.3 15.2 72.3 12.5 2.7 | 12.6 25.2 58.7 13.8 11.4 | Avg. Emp. Wrkwk 1.0 15.3 70.7 14.1 1.2 | 12.3 14.8 62.9 19.0 -4.2 | Capital Ex. -- -- -- -- -- | 17.6 24.0 35.6 11.1 12.9 Notes: (1) Items may not add to 100 percent because of omission by respondents. (2) All data are seasonally adjusted. (3) Diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. (4) Survey results reflect data received through September 13, 2005. August 2005 Activity in the region's manufacturing sector continued to expand in August, at a somewhat faster pace than in July. Indicators for general activity, new orders, shipments, and employment remained positive and increased from their readings last month. Firms continued to report a rise in prices for inputs, but prices for their own manufactured goods held relatively steady. Also this month, the region's manufacturing executives were significantly more optimistic about future activity than they were in July. Most Current Indicators Rise The survey's broadest measure of manufacturing conditions, the diffusion index of current activity, increased from 9.6 in July to 17.5 in August. The eight- point gain brings the index to its highest reading since April (see Chart). Thirty-six percent of the firms reported increases in activity this month, compared to 28 percent last month. Other broad indicators showed improvement. The new orders index increased nearly 15 points, to its highest reading since April. The current shipments index increased five points. Unfilled orders rose this month: the unfilled orders index increased 16 points, its first positive reading in eight months. The delivery time and inventory indexes also increased. The improvement in manufacturing activity was accompanied by a slight increase in the employment index this month. The employment index increased three points, to just above its average over the previous three months. The percentage of firms reporting increased employment (21 percent) was higher than that of firms reporting lower employment (15 percent) for the 23rd consecutive month. On balance, the workweek was mostly steady this month. Manufacturers' Prices Nearly Steady Despite Higher Costs Despite continued cost pressures, prices for firms' own manufactured goods were essentially steady this month. Only slightly more firms reported higher prices for their own manufactured goods (12 percent) than reported lower prices (9 percent), and 78 percent of the firms indicated steady prices. The current prices received index fell from 12.0 to 3.0, its lowest reading since August 2003. Despite the moderation in the prices received for their own manufactured goods, firms reported higher production costs. Thirty-three percent of firms reported higher input costs this month. The prices paid diffusion index, which decreased one point, remains near the 21-month low it reached in June. In a special question this month, firms were asked about their expectations of price increases for selected inputs over the remainder of this year. Seventy-six percent of the manufacturers expect further increases in energy costs, 65 percent expect price increases for raw materials, and 52 percent expect increases for intermediate goods. Firms expect energy prices to increase an average of 5.4 percent over the remainder of the year, raw materials 2.8 percent, and intermediate goods 2 percent. Six-Month Forecasts More Optimistic Overall expectations for the next six months remain optimistic and improved markedly from July. The index for future activity increased from 15.3 in July to 33.4, its highest reading since December (see Chart). Other future indicators also increased this month: the future shipments index rose 10 points, and the future new orders index rose eight points. Manufacturing executives were slightly more optimistic about adding to their payrolls over the next six months: the future employment index increased seven points. Nearly 29 percent of the firms indicated plans to increase employment over the next six months; 16 percent plan to decrease employment. Firms, on balance, expect increases in the average workweek; the future workweek index rose 15 points. Summary Indicators continue to point to an expansion of the region's manufacturing sector, as most indicators of current performance increased from their July readings. Firms continued to report higher prices for inputs, but prices for their own manufactured goods were nearly steady this month. Firms expect continued price increases for energy, raw materials, and intermediate goods over the next six months. Future indicators for general activity and employment, up notably this month, point to expectations among the region's manufacturers of continued growth in their business over the next six months. Special Question August 2005 For the remainder of 2005, what change in prices do you anticipate for energy, raw materials, and intermediate goods? Percentage of firms expecting: Energy % Raw Materials % Intermediate Goods % Increase 75.6 65.1 51.9 Decrease 1.2 7.2 3.7 No Change 23.2 27.7 44.4 Total 100 100 100 Average Change Expected* 5.4 2.8 2.0 *Average change expected for those firms that provided a magnitude of change. Summary of Returns August 2005 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 Busines 9.6 36.3 45.0 18.8 17.5 | 15.3 45.6 38.8 12.2 33.4 Conditions | | New Orders 5.0 38.7 39.9 18.9 19.8 | 22.8 43.2 42.3 12.7 30.5 | Shipments 12.4 35.7 46.5 17.8 17.8 | 22.5 48.2 29.6 15.3 32.9 | Unfilled Orders -9.2 21.0 64.4 13.8 7.2 | -2.0 21.5 55.0 22.8 -1.3 | Delivery Times -1.9 15.1 70.4 14.2 0.9 | -2.0 13.0 62.1 21.3 -8.3 | Inventories -10.9 14.9 62.9 22.2 -7.3 | -20.0 21.7 49.0 29.3 -7.6 | Prices Paid 26.5 33.0 58.4 7.1 25.9 | 43.0 47.0 47.5 3.4 43.6 | Prices Received 12 12.4 78.1 9.4 3.0 | 24.4 36.7 53.9 6.7 30.1 | Number of Emp. 3.4 20.7 64.8 14.5 6.3 | 5.5 28.7 50.0 16.2 12.6 | Avg. Emp. Wrkwk 6.0 14.6 71.9 13.5 1.0 | -3.1 19.6 68.0 7.4 12.3 | Capital Ex. -- -- -- -- -- | 12.3 28.2 40.6 10.5 17.6 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 results reflect data received through August 16, 2005. Business Outlook Survey July 2005 Activity in the region's manufacturing sector increased modestly, according to firms surveyed for this month's Business Outlook Survey. Indicators for general activity, shipments, and new orders increased from their readings in June. Firms continue to report a rise in prices for inputs and for their own finished goods; both of these price indexes increased slightly this month. Despite the improvement in current conditions, respondents were less optimistic about future conditions this month than in June. However, they still expect manufacturing growth to continue. Current Indicators Bounce Back The survey's broadest measure of manufacturing conditions, the diffusion index of current activity, increased from -2.2 in June to 9.6 this month. The increase of almost 12 points returns the index to positive territory after being negative for one month (see Chart 1). The portion of firms reporting increases in activity exceeded that of firms reporting decreases (28 percent versus 19 percent). Other broad indexes showed modest improvement. The new orders index edged up three points to a reading of 5.0, suggesting only slight growth this month. The current shipments index increased nearly six points, to 12.4. The current unfilled orders and delivery times indexes improved but were negative for the second consecutive month. Firms reported overall declines in inventories this month, as the current inventories index remained negative, falling 11 points. The recent moderation in manufacturing growth is evident in replies to questions about employment and hours worked. The percentage of firms reporting increased employment was higher than that of firms reporting lower employment for the 22nd consecutive month. But the current employment index fell to its lowest point since November 2003. While remaining at a relatively low level, the current workweek index increased two points this month. Price Pressures Continue to Moderate Firms continue to report higher production costs. Thirty-five percent of the manufacturers reported higher prices for inputs; only 9 percent reported lower prices. The diffusion index for prices paid rose for the first time in three months, though only a modest three points above June's reading, which was the index's lowest point in 21 months (see Chart 2). More firms continue to report higher prices than report lower prices for their own manufactured goods (21 percent versus 9 percent). The diffusion index for prices received increased from 8.1 in June to 12 this month, but this is the second-lowest reading in 19 months (see Chart 2). Six-Month Forecasts Less Optimistic Despite the improvement in current activity, expectations for future growth showed some deterioration this month. The index for future activity fell from 30.6 in June to 15.3 this month, its lowest reading since February 2001 (see Chart 1). Despite the decline in the index, the percentage of firms expecting increases in activity over the next six months (40 percent) still exceeds the percentage expecting decreases (25 percent). Other future indicators declined this month as well: the future new orders index fell 12 points, and the future shipments index fell 14 points. Little change is expected in unfilled orders and delivery times over the next six months (these indexes remain near zero). More firms expect inventories to decline (34 percent) than expect them to increase (14 percent). The future inventory index remained negative and fell 11 points. The future employment index also declined notably, from 21.4 in June to 5.5 this month, its lowest reading since August 2002. The percentage of firms expecting to increase employment over the next six months (26 percent) is slightly larger than the percentage expecting to decrease employment (20 percent). The future workweek index declined 18 points, falling below zero for the first time since March 2001. Summary Indicators of current activity point to an expansion of the region's manufacturing sector. Indexes for general activity, shipments, and new orders suggest a moderate pace of growth. Firms continue to report higher prices for inputs and for their own manufactured goods, but the survey's price indexes remain lower than earlier this year. Although manufacturers are generally optimistic about growth in their sector, expectations for the next six months fell dramatically in July. Summary of returns July 2005 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 Busines -2.2 28.1 55.3 18.5 9.6 | 30.6 39.9 30.7 24.6 15.3 Conditions | | New Orders 2.5 28.6 47.8 23.6 5.0 | 35.0 48.1 19.7 25.4 22.8 | Shipments 6.6 31.8 48.9 19.3 12.4 | 36.1 47.6 21.3 25.1 22.5 | Unfilled Orders -19.0 13.5 63.8 22.7 -9.2 | 2.9 20.6 51.2 22.7 -2.0 | Delivery Times -13.2 11.7 74.7 13.6 -1.9 | -4.9 15.8 61.9 17.8 -2.0 | Inventories -0.4 15.4 56.2 26.3 -10.9 | -8.7 14.3 45.4 34.3 -20.0 | Prices Paid 23.5 35.3 56.0 8.7 26.5 | 29.2 46.4 45.7 3.3 43.0 | Prices Received 8.1 21.2 66.4 9.1 12.0 | 26.5 29.1 57.8 4.7 24.4 | Number of Emp. 7.1 18.2 66.9 14.8 3.4 | 21.4 25.9 47.4 20.4 5.5 | Avg. Emp. Wrkwk 4.4 15.4 72.1 9.4 6.0 | 15.1 19.8 53.6 22.8 -3.1 | Capital Ex. -- -- -- -- -- | 19.9 22.4 51.3 10.1 12.3 Notes: (1) Items may not add to 100 percent because of omission by respondents. (2) All data are seasonally adjusted. (3) Diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. (4) Survey results reflect data received through July 18, 2005. Business Outlook Survey June 2005 Activity in the region's manufacturing sector weakened in June, according to firms surveyed for this month's Business Outlook Survey. This represents a decline from the moderate performance in May. Indexes for general activity, new orders, and shipments fell from their readings in May, and most indicators have weakened over the past two months. Firms continued to report a rise in prices for inputs and for their finished goods, although the survey's price indexes fell again this month. Overall employment was reported slightly higher, and average work hours also improved. Despite the weakness in current conditions, expectations for growth over the next six months improved somewhat this month. Conditions Weaken This Month The diffusion index of current activity, the broadest measure of manufacturing conditions, fell from 7.3 in May to -2.2 this month. This is the index's first negative reading in 25 months (see Chart). The portion of firms reporting decreases in activity (21 percent) was slightly greater than the portion reporting increases (19 percent). The current new orders index fell 13 points this month, and the shipments index fell eight points. Both indexes remained positive but suggest little or no growth in June. Indicators for unfilled orders and delivery times were negative and provide corroborating evidence of weakness: the unfilled orders index fell 19 points, and the delivery times index fell 14 points. Despite the weakening in broad indicators, the survey's employment index was slightly higher this month. The current employment index rose from 5.4 in May (the lowest reading since November 2004) to 7.1 this month. More firms reported higher employment than lower (18 percent versus 11 percent); 71 percent reported no change. Price Pressures Moderate Again Although firms continue to report higher production costs, the index for input prices fell notably this month. The diffusion index for prices paid declined from 30.9 in May to 23.5. The index has generally trended down since its high reading of 66.1 in January and is now at its lowest point in 21 months. Firms continue to report higher prices for their own manufactured goods, though price increases were less widespread this month (17 percent reported higher prices; 9 percent reported lower prices). The diffusion index for prices received fell eight points and is now at its lowest reading in 18 months. Outlook Remains Favorable Despite the weakness in current activity this month, expectations for future growth improved. The index for future activity increased from 22.3 in May to 30.6, its highest reading in six months (see Chart). The portion of firms anticipating improvement in business conditions over the next six months (47 percent) continues to exceed the portion expecting deterioration (16 percent) by a significant margin. Other future indicators improved. The future new orders index increased 19 points, and the future shipments index rose 16 points. The future employment index also increased notably, from 7.0 in May to 21.4 this month. The future workweek index paralleled the increase in the future employment index. The future capital spending index edged up four points. In special questions this month, firms were asked about their expectations for spending on new plant and equipment over the next six to 12 months, relative to actual spending during the past six to 12 months (see Special Questions). Nearly 40 percent of the firms indicated that they plan to increase spending; 13 percent said they planned a decrease. There was a slight decline in the percentage of firms expecting increases compared to January when the same question was posed to the survey participants. The most frequently cited reasons for planned increases in spending were expected sales growth, the need to replace capital goods, and a high current capacity utilization rate. Firms were also asked about their anticipated employment increases in the same six- to 12-month period. Forty-three percent of the firms expect increases over that period, and 11 percent expect decreases. Nearly 22 percent of firms expect an increase of up to 3 percent, and about 14 percent of the firms expect increases of between 4 and 6 percent. About 8 percent said they expect employment increases of more than 7 percent. Summary Overall manufacturing conditions in the region weakened this month, as indicators of current performance fell from their May readings. Indexes for general activity, new orders, and shipments dropped to their lowest readings in two years and suggest little or no growth for the month. Firms continued to report higher prices for inputs and their own manufactured goods, but the survey's price indicators fell again this month. Although current conditions were reported weaker this month, manufacturers were more optimistic about growth in manufacturing over the next six months. Special Question 1. Do you expect your firm's spending on new plant and equipment over the next six to 12 months to increase, decrease, or remain more or less unchanged relative to your actual spending over the past six to 12 months? June 2005 (%) January 2005 (%) January 2004 (%) Increase 39.8 43.8 58.2 Decrease 13.3 15.7 12.7 No Change 47.0 40.4 29.1 2. What are the major factors behind your plan to increase capital spending? (Top five chosen)* Expected growth of sales is high 58.8 Need to replace non-IT capital goods 44.1 Capacity utilization is currently high 35.3 Firm's cash flow or balance sheet position has improved 26.5 Need to replace information technology (IT) equipment 23.5 3. What are the major factors behind your plans not to increase capital spending? (Top five chosen)* Limited need to replace other capital goods 38.3 Expected growth of sales is low 27.7 Capacity utilization is currently low 27.7 Limited need to replace information technology (IT) equipment 23.4 Firm's cash flow or balance sheet position has not improved 17.0 4. What percentage change in employment is anticipated over the next six to 12 months? % Stay at current levels 45.6 Increase of 0-3% 21.5 Increase of 4-6% 13.9 Increase of 7-9% 6.3 Increase of 10% or more 1.3 Total Increase 43.0 Decrease of 0-3% 5.1 Decrease of 4-6% 0 Decrease of 7-9% 2.5 Decrease of 10% or more 3.8 Total Decrease 11.4 Summary of returns June 2005 June vs. May | Six Months from now vs June | | Prev. | Prev. Diff. Inc. No ch. Dec. Diff. | Diff. Inc. No ch. Dec. Diff. Index Index | Index Index | General Busines 7.3 18.8 58.0 21.0 -2.2 | 22.3 46.5 34.2 16.0 30.6 Conditions | | New Orders 15.0 28.0 43.8 25.5 2.5 | 16.1 49.7 31.9 14.7 35.0 | Shipments 14.9 29.4 47.7 22.8 6.6 | 20.0 50.3 32.5 14.2 36.1 | Unfilled Orders -0.1 7.2 60.7 26.2 -19.0 | -7.1 18.2 63.1 15.4 2.9 | Delivery Times 0.5 1.9 83.0 15.1 -13.2 | -6.2 9.0 73.3 13.9 -4.9 | Inventories 2.0 21.1 54.4 21.5 -0.4 | -12.5 19.5 50.3 28.1 -8.7 | Prices Paid 30.9 31.9 59.7 8.4 23.5 | 32.5 38.6 50.4 9.4 29.2 | Prices Received 15.7 17.3 73.5 9.2 8.1 | 16.5 32.4 57.7 6.0 26.5 | Number of Emp. 5.4 18.0 71.0 10.9 7.1 | 7.0 30.5 57.0 9.1 21.4 | Avg. Emp. Wrkwk -2.8 18.6 66.3 14.2 4.4 | 3.5 22.4 66.7 7.3 15.1 | Capital Ex. -- -- -- -- -- | 15.7 27.1 43.5 7.1 19.9 Notes: (1) Items may not add to 100 percent because of omission by respondents. (2) All data are seasonally adjusted. (3) Diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. (4) Survey results reflect data received through June 14, 2005. May 2005 Activity in the region's manufacturing sector continued to expand, but at a slower rate than in April. Indicators for general activity, new orders, shipments, and employment remained positive but fell from their readings last month. Firms continued to report a rise in prices for inputs and for their own finished goods, although the survey's price indexes fell. Respondents were less optimistic about future conditions this month than in April, but overall expectations suggest that manufacturing growth is expected to continue. Current Indicators Suggest Slower Growth The diffusion index of current activity, the broadest measure of manufacturing conditions, decreased from 25.3 in April to 7.3 this month. The index has been positive for 24 consecutive months, but May's reading is the lowest since June 2003 (see Chart). The percentage of firms reporting increases in activity (26 percent) was greater than that of firms reporting decreases (19 percent). Over 55 percent reported no change in general activity compared to April. The new orders and shipments indexes also remained positive but showed declines. The shipments index fell 15 points. The new orders index fell five points, but 35 percent of the firms reported increases in new orders (slightly lower than last month). Indicators for unfilled orders and delivery times were both close to zero, suggesting little change overall. The moderation in manufacturing activity is evident in replies to questions about employment and hours worked. The percentage of firms reporting increased employment was higher than that of firms reporting lower employment for the 20th consecutive month. But the current employment index fell to its lowest point since November 2003, and the current workweek index fell to its lowest level since June 2003. Price Indexes Moderate Although firms continue to report higher production costs, the index for input prices fell nearly 20 points. The percentage of firms reporting higher prices for inputs was substantially below April's number. Firms continue to report higher prices for their own manufactured goods: 22 percent reported higher prices; 6 percent reported lower. The diffusion index for prices received, however, fell 12 points. Expectations about future prices declined significantly this month. The future prices paid index fell 18 points, and the future prices received index dropped 21 points. Six-Month Indicators Fall Again Overall expectations for the next six months remain generally optimistic, although the index for future activity fell from a reading of 27.5 in April to 22.3, its lowest point since March 2001 (see Chart). Nevertheless, the portion of firms anticipating improvement in business conditions over the next six months (40 percent) continues to exceed the portion expecting deterioration (18 percent) by a wide margin. Other future indicators declined this month. The future new orders index fell 18 points, and the future shipments index fell 12 points. On balance, firms expect unfilled orders to decrease modestly over the next six months and delivery times to decrease. The portion of firms that expect inventories to decrease over the next six months (27 percent) is greater than that of firms expecting them to increase (14 percent). Firms' expectations for future employment and capital spending declined this month. The future employment index fell from 19.2 in April to 7.0 in May, its lowest reading since May 2003. More than 22 percent of the firms anticipate adding workers over the next six months, down from 31 percent in April. Following three consecutive months of improvement, the capital spending diffusion index fell 16 points. In special questions this month, firms were asked about the impact of recent cost increases on prices expected for their products over the next three months (see Special Questions). About 41 percent of respondents expect steady prices for their own goods over the next three months (almost identical to this time last year). Forty-four percent of the firms said they have already increased prices since the beginning of the year. Twenty-seven percent are currently experiencing shortages or delayed delivery of critical raw materials (39 percent reported shortages last year). Fifty-five percent of those experiencing shortages or delayed deliveries indicated that these problems have affected rates of production. Summary Indicators of current activity continue to point to an expansion of the region's manufacturing sector, although indicators for general activity, shipments, employment, and work hours suggest a slower pace of growth. Firms continued to report higher prices for inputs and for their own manufactured goods, but the survey's price indexes moderated this month. Although manufacturers are generally optimistic about growth in their sector, expectations for the next six months fell again in May. Business Outlook Survey Summary of Returns May 2005 May vs. Apr. | Six Months from now vs May | | Prev. | Prev. Diff. Inc. No ch. Dec. Diff. | Diff. Inc. No ch. Dec. Diff. Index Index | Index Index | General Busines 25.3 25.9 55.3 18.6 7.3 | 27.5 40.3 39.0 18.0 22.3 Conditions | | New Orders 20.3 34.9 44.6 19.9 15.0 | 33.9 37.6 35.1 21.5 16.1 | Shipments 29.4 30.4 52.2 15.5 14.9 | 31.8 37.3 39.0 17.3 20.0 | Unfilled Orders -3.8 17.4 62.7 17.5 -0.1 | 3.9 17.2 53.1 24.3 -7.1 | Delivery Times 5.1 11.7 75.1 11.2 0.5 | 6.8 14.4 59.8 20.6 -6.2 | Inventories 3.4 23.0 56.0 21.0 2.0 | -8.5 14.3 53.7 26.9 -12.5 | Prices Paid 50.5 37.6 55.8 6.7 30.9 | 50.6 44.7 40.7 12.2 32.5 | Prices Received 28 22.0 71.6 6.3 15.7 | 37.0 27.4 56.7 11.0 16.5 | Number of Emp. 16.8 20.1 62.7 14.6 5.4 | 19.2 22.2 59.1 15.3 7.0 | Avg. Emp. Wrkwk 20.4 14.3 68.5 17.1 -2.8 | 12.7 18.9 61.2 15.4 3.5 | Capital Ex. -- -- -- -- -- | 32.1 26.0 47.7 10.3 15.7 Notes: (1) Items may not add to 100 percent because of omission by respondents. (2) All data are seasonally adjusted. (3) Diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. (4) Survey results reflect data received through May 16, 2005. Special Questions (May 2005) 1. Many firms have been reporting price increases for raw materials and energy since the beginning of the year. What impact will these recent price increases have on the prices of your finished products over the next three months? May 2005 May 2004 We expect steady prices for our goods: 40.9 % 39.3% We expect price increases of approximately: 0-5% 33.3% 25.6% 5-10% 10.8% 21.4% 10-15% 1.0% 8.6% No response 14.0% 5.1% Total 100.0% 100.0% Since the beginning of the year, we have already increased our prices by: May 2005 May 2004 0-5% 24.7% 26.5% 5-10% 16.1% 14.5% 10-15% 3.2% 4.3% > 15% 0.0% 3.4% Total 44.0% 48.7% 2. Are you currently experiencing shortages or delayed delivery of any critical raw materials?* May 2005 May 2004 Yes 26.9% 39.1% No 73.1% 60.9% If yes, have these problems affected rates of production? May 2005 May 2004 Yes 55.0% 55.6% No 45.0% 44.4% * Some cited raw materials were steel and steel-related products (such stainless, steel tube, bearings), cement, titanium, acrylic, aluminum, tires, copper wire, printed circuit boards, and rubber compounds. April 2005 Activity in the region's manufacturing sector continues to expand, according to firms surveyed for this month's Business Outlook Survey. Most indicators point to somewhat faster growth in April, with increases recorded in the indexes for general activity, new orders, shipments, and employment. After moderating over the past few months, indexes for the prices of inputs and finished goods rose notably. The region's manufacturing executives remain generally optimistic that growth will continue over the next six months. Current Indicators Rise The diffusion index of current activity, the broadest measure of manufacturing conditions, increased from 11.4 in March to 25.3 this month, rebounding from its lowest reading in 20 months (see Chart). The index has now remained positive for 23 consecutive months. More firms reported increases in activity (36 percent) than decreases (11 percent), with a large segment (54 percent) reporting no change from March. The new orders and shipments indexes both increased this month: the new orders index rose seven points, and the shipments index rose almost 15 points. Indicators for unfilled orders and delivery times changed little from March. The current inventory index rose nine points and is now positive for the first time in six months. The increase in broad indicators of manufacturing activity this month was accompanied by an increase in the survey's employment indicators. The percentage of firms reporting increased employment (29 percent) was higher than that reporting lower employment (13 percent) for the 19th consecutive month. The current employment index increased seven points to its highest reading in three months, and the current workweek index increased 18 points to its highest reading in 14 months. In special questions this month firms were asked about their current rate of capacity utilization compared with six months ago (see Special Questions). The results indicate that the average capacity utilization rate among the surveyed firms is currently about 78.5 percent, up about one percentage point from six months earlier. Forty-six percent of the surveyed firms plan to increase capacity in 2005; of these, the largest segment (45 percent) indicated that plant capacity would be increased 5 to 10 percent this year, and about 34 percent said capacity would grow more than 10 percent. Price Pressures Are More Prevalent Firms reported higher production costs this month, and after moderating over the past few months, the prices paid diffusion index rose 21 points, to its highest reading in three months. Nearly 56 percent of firms reported higher prices for inputs this month, compared with 36 percent in March. Only 5 percent of the manufacturers reported decreases in their input prices. Higher prices for final manufactured goods were also more widespread this month. Thirty-three percent of firms reported higher prices for their goods, and the prices received index increased 13 points to its highest reading in six months. Six-Month Outlook Remains Optimistic Firms' outlook for the next six months remains generally optimistic, although the index for future activity fell slightly this month. The future general activity index decreased from 29.8 in March to 27.5. The index has remained relatively steady for the past four months (see Chart). Other broad future indicators also showed small or moderate declines: the future new orders index fell one point, and the future shipments index fell about eight points. Firms' expectations for future employment remain generally optimistic. Thirty-one percent of the firms expect to add workers over the next six months. The future employment index fell slightly (two points) from its reading in March. Firms, on balance, expect increases in the average workweek, and the future workweek index increased seven points. Firms' capital spending plans continue to show improvement. The future capital spending index increased for the third consecutive month and is now at its highest reading since February 2000. Summary Indicators of current activity improved this month and continue to reflect growth in the region's manufacturing sector. Indexes for general activity, new orders, shipments, and employment all increased from their readings in March. Responses from this month's survey suggest that input price pressures were greater this month, and more firms reported higher prices for their final manufactured goods. Firms expect continued growth in their business over the next six months, with almost one-third indicating that they will increase employment. Firms' outlook for future capital spending continues to improve. Special Questions (April 2005) 1. Which of the following best characterizes your capacity utilization rate? Current Six Months Ago Less than 60 8.9% 9.0% 60-65 7.6% 10.3% 65-70 11.4% 11.5% 70-75 12.7% 19.2% 75-80 13.9% 9.0% 80-85 10.1% 9.0% 85-90 13.9% 10.2% 90-95 11.4% 9.0% 95-100 10.1% 12.8% Total 100.0% 100.0% Estimated Average 78.5% 77.4% 2. Does your company have plans to increase capacity at your plant in 2005? Yes 45.8% No 54.2% Total 100.0% If yes, by how much? 0-5% 21.1% 5-10% 44.7% 10-15% 18.4% >15% 15.8% Total 100.0% Summary of Returns April 2005 April. vs. Mar. | Six Months from now vs Apr. | | Prev. | Prev. Diff. Inc. No ch. Dec. Diff. | Diff. Inc. No ch. Dec. Diff. Index Index | Index Index | General Busines 11.4 35.8 53.7 10.5 25.3 | 29.8 40.8 43.7 13.3 27.5 Conditions | | New Orders 13.2 37.3 45.8 16.9 20.3 | 35.3 49.1 33.1 15.2 33.9 | Shipments 14.7 44.0 40.7 14.6 29.4 | 39.4 48.2 32.2 16.4 31.8 | Unfilled Orders -2.1 14.8 66.4 18.6 -3.8 | 5.8 22.7 56.4 18.8 3.9 | Delivery Times 3.5 12.9 74.1 7.9 5.1 | 0.1 19.0 67.1 12.2 6.8 | Inventories -5.3 22.0 58.5 18.6 3.4 | 1.0 20.4 48.5 28.9 -8.5 | Prices Paid 29.7 55.9 38.8 5.4 50.5 | 42.2 58.0 28.9 7.4 50.6 | Prices Received 15.3 33.2 61.6 5.2 28.0 | 22.4 43.0 50.2 6.0 37.0 | Number of Emp. 10.1 29.3 57.7 12.5 16.8 | 21.5 30.5 54.6 11.3 19.2 | Avg. Emp. Wrkwk 2.6 23.1 71.0 2.7 20.4 | 5.3 20.7 66.6 8.0 12.7 | Capital Ex. -- -- -- -- -- | 30.4 37.8 42.7 5.8 32.1 Notes: (1) Items may not add to 100 percent because of omission by respondents. (2) All data are seasonally adjusted. (3) Diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. (4) Survey results reflect data received through April 15, 2005. March 2005 Activity in the region's manufacturing sector continues to expand, but at a slower rate than in February. Indicators for general activity, shipments, and employment show a more moderate pace of growth. Firms continue to report a rise in prices for inputs and for their own finished goods, although the survey's price indicators have moderated from recent highs. The region's manufacturing executives were slightly more optimistic this month than in February. Manufacturing Expansion Continues The diffusion index of current activity, the broadest measure of manufacturing conditions, decreased from 23.9 in February to 11.4 in March. This is its lowest reading in 20 months (see Chart). More firms reported increases in activity (27 percent) than reported decreases (15 percent). A large percentage (58 percent) reported no change in general activity compared to February. The new orders and shipments indexes remained positive this month, but the new orders index increased two points, while the shipments index fell nine points. Indicators for unfilled orders and delivery times changed little from February. The moderation in manufacturing activity this month is evident in the responses about employment and hours worked. The percentage of firms reporting increased employment was higher than that reporting lower employment for the 18th straight month. But the current employment index fell to its lowest reading in 16 months, and the current workweek index also fell to its lowest level in four months. In special questions this month, firms were asked about the actual level of their inventories over the last three months and the economic factors that influenced them (see Special Questions). Firms reporting higher levels of inventory (41 percent) exceeded those reporting lower levels (27 percent). Of the firms reporting higher levels, 32 percent replied that lower than anticipated sales had a significant effect on inventories; 9 percent indicated that expected higher energy prices had a slight impact on the larger inventories, and 24 percent thought anticipated higher material costs had a slight impact. Among firms reporting lower inventories, 23 percent said that greater than anticipated sales had been a significant factor. Price Indexes Moderate Although firms continue to report higher production costs, the index for input prices fell notably again this month: 36 percent of firms reported higher prices for inputs, substantially lower than February (49 percent)and January (67 percent). The diffusion index for prices paid is at its lowest reading in 16 months. Firms continue to report higher prices for their own manufactured goods: 23 percent reported higher prices; 8 percent reported lower. The diffusion index for prices received is at its lowest reading in 11 months. Expectations about future prices moderated this month. The future prices paid index decreased 21 points, and the future prices received index decreased 18 points. Manufacturing Expansion Expected to Continue Overall expectations for the next six months improved slightly in March. The future general activity index increased from 26.5 to 29.8, its highest point in three months but still below readings for most of last year (see Chart). Other future indicators showed similar improvement: the future new orders index increased six points and the future shipments index increased nine points. The future inventory index increased notably, from -16.9 in February to 1.0 this month. The future employment index increased from 11.8 in February to 21.5 in March. On balance, firms that expect average work hours to increase slightly edged out those that expect them to decrease. Firms' capital spending plans have shown some improvement in recent months. The future capital spending index rose to its highest point since September 2000. Summary Indicators continue to point to expansion of the region's manufacturing sector, although indicators for general activity, shipments, employment, and work hours fell from their readings in February. Firms continue to report higher costs for inputs and manufactured goods this month, but the survey's price indexes moderated from their recent highs. Most broad indicators of future conditions edged higher this month with the outlook for employment and capital spending showing notable improvement. Special Questions (March 2005) 1. Over the past three months has your actual level of inventories: Increased 40.5% Decreased 27.4% Not changed 32.1% Total 100.0% 2. To what extent have any of the factors below influenced your actual level of inventories? For those reporting increases: Significant Slight No Effect Sales of products less than anticipated 32.4% 8.8% 58.8% Sales of products greater than anticipated 14.7% 20.6% 64.7% Anticipation of higher energy costs 0.0% 8.8% 91.2% Anticipation of lower energy costs 0.0% 0.0% 100.0% Anticipation of higher material costs 26.5% 23.5% 50.0% Anticipation of lower material costs 0.0% 5.9% 94.1% Other 11.7% 5.9% 82.4% For those reporting decreases: Significant Slight No Effect Sales of products less than anticipated 9.1% 9.1% 81.8% Sales of products greater than anticipated 22.7% 22.7% 54.6% Anticipation of higher energy costs 0.0% 13.6% 86.4% Anticipation of lower energy costs 4.5% 4.5% 91.0% Anticipation of higher material costs 27.3% 13.6% 59.1% Anticipation of lower material costs 0.0% 9.1% 90.9% Other 13.6% 0.0% 86.4% Summary of returns March 2005 Mar. vs. Feb. | Six Months from now vs Mar. | | Prev. | Prev. Diff. Inc. No ch. Dec. Diff. | Diff. Inc. No ch. Dec. Diff. Index Index | Index Index | General Busines 23.9 26.5 58.4 15.1 11.4 | 26.5 41.6 37.2 11.8 29.8 Conditions | | New Orders 11.7 31.3 49.8 18.1 13.2 | 29.8 46.1 32.3 10.7 35.3 | Shipments 23.8 34.4 45.5 19.7 14.7 | 30.9 51.7 28.2 12.3 39.4 | Unfilled Orders -2.8 15.4 65.8 17.4 -2.1 | 1.9 21.2 55.9 15.3 5.8 | Delivery Times 7.1 12.8 77.9 9.3 3.5 | 2.5 13.8 65.0 13.7 0.1 | Inventories -7.4 17.6 58.4 22.8 -5.3 | -16.9 23.4 48.4 22.4 1.0 | Prices Paid 43.5 36.0 57.6 6.4 29.7 | 63.1 50.2 33.3 8.0 42.2 | Prices Received 24.6 22.9 69.5 7.6 15.3 | 40.1 31.5 50.7 9.2 22.4 | Number of Emp. 12.3 20.9 68.3 10.8 10.1 | 11.8 33.9 46.7 12.4 21.5 | Avg. Emp. Wrkwk 11.3 15.8 65.5 13.2 2.6 | 3.5 16.9 63.3 11.6 5.3 | Capital Ex. -- -- -- -- -- | 23.9 34.4 38.1 4.0 30.4 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 results reflect data received through March 14, 2005. February 2005 Activity in the region's manufacturing sector continues to expand, according to firms surveyed for this month's Business Outlook Survey. Most indicators point to somewhat faster expansion in February, with increases recorded in the indexes of general activity, new orders, and shipments. Nearly one-quarter of the firms reported higher employment. Firms continue to report a rise in prices for inputs and finished goods, although the price index for inputs fell significantly this month. The region's manufacturing executives remain generally optimistic that business conditions will improve over the next six months. Most Current Indicators Show Improvement The diffusion index of current activity, the broadest measure of manufacturing conditions, increased from 13.2 in January to 23.9 this month. The index has now remained positive for 21 consecutive months (see Chart). The percentage of firms reporting increases in activity (36 percent) was three times greater than the percentage reporting decreases. The indexes for new orders and shipments also remained positive this month. The current new orders index increased two points and the shipments index increased eight points. Indexes for both unfilled orders and delivery times improved this month. The delivery time index increased 10 points and registered its first positive reading in four months. Despite improvement in the survey's broad indicators, the employment index was lower this month. The current employment index decreased from a reading of 17.0 in January to 12.3, its lowest point in 15 months. Still, the percentage of firms reporting higher employment (24 percent) was greater than the percentage reporting lower employment (11 percent) for the 17th consecutive month. The current work week index remained positive and increased moderately from last month. Input Price Pressures Moderate Although firms continue to report higher production costs, the index for input prices fell notably this month. Nearly one-half of firms reported higher prices for inputs, but this was substantially lower than the two-thirds that reported higher prices in January. The diffusion index for prices paid declined almost 23 points and is at its lowest reading in 12 months. Firms continue to report higher prices for their own manufactured goods. Twenty-nine percent reported higher prices for their own goods; 4 percent reported lower prices. The diffusion index for current prices received was virtually unchanged from its reading in January. Expectations about future prices, however, were higher this month. The future prices paid index increased 21 points, and the future prices received index increased 12 points. Six-Month Forecast Improves Slightly Overall expectations for the next six months remain generally optimistic, although the index for future employment declined sharply this month. The future general activity index increased slightly from 25.5 in January to 26.5 this month (see Chart). The percentage of firms expecting an increase in activity over the next six months (40 percent) exceeded by a wide margin the percentage expecting activity to decrease (14 percent). Other future indicators remained positive, but the future new orders index decreased seven points, while the future shipments index increased one point. Firms, on balance, expect unfilled orders and delivery times to remain near current levels. Inventories are expected to fall. Firms' expectations for future employment deteriorated in this month's survey. The future employment index decreased from a reading of 25.9 in January to 11.8. The 14-point decline brings the index to its lowest reading in 21 months. In a special question this month, firms were asked whether the share of products they export will increase over the remainder of this year (see Special Question). Although 70 percent of the firms expect no change in the share of products they export, the percentage expecting an increase in export share (26 percent) exceeded the percentage expecting a decrease (4 percent). Summary Most indicators of current activity improved this month and continue to reflect growth in the region's manufacturing sector. Indexes for general activity, new orders, and shipments all increased from their readings in January. Employment growth, as reflected in the current employment index, was more modest this month. Responses from this month's survey suggest that input price pressures moderated this month. Firms expect growth in their business to continue over the next six months as future indicators for general activity and shipments were higher this month. Indicators for future new orders and employment, however, reflected more subdued expectations. Special Question (February 2005) Over the remainder of this year, do you expect the share of products you export to: Stay the same 70.2% Increase 26.2% Decrease 3.6% Total 100.0% Summary of Returns February 2005 Feb. vs. Jan. | Six Months from now vs Feb. | | Prev. | Prev. Diff. Inc. No ch. Dec. Diff. | Diff. Inc. No ch. Dec. Diff. Index Index | Index Index | General Busines 13.2 35.5 52.9 11.6 23.9 | 25.5 40.4 45.6 14.0 26.5 Conditions | | New Orders 9.8 34.1 42.6 22.4 11.7 | 36.9 41.9 42.6 12.1 29.8 | Shipments 15.9 41.1 40.8 17.3 23.8 | 29.5 46.4 36.6 15.4 30.9 | Unfilled Orders -5.2 13.0 70.0 15.8 -2.8 | 8.3 15.2 64.3 13.2 1.9 | Delivery Times -3.2 14.3 77.5 7.3 7.1 | -3.5 13.9 70.7 11.5 2.5 | Inventories -2.7 20.5 50.0 28.0 -7.4 | -10.4 13.6 49.3 30.5 -16.9 | Prices Paid 66.1 49.0 45.6 5.4 43.5 | 42.2 66.9 26.1 3.9 63.1 | Prices Received 24.7 29.0 66.5 4.3 24.6 | 28.6 45.6 46.7 5.5 40.1 | Number of Emp. 17.0 23.7 63.3 11.4 12.3 | 25.9 30.0 47.2 18.3 11.8 | Avg. Emp. Wrkwk 9.1 19.7 70.2 8.5 11.3 | 6.0 14.0 71.3 10.5 3.5 | Capital Ex. -- -- -- -- -- | 22.9 30.9 37.5 6.9 23.9 Notes: (1) Items may not add to 100 percent because of omission by respondents. (2) All data are seasonally adjusted. (3) Diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. (4) Survey results reflect data received through February 14, 2005. January 2005 Activity in the region's manufacturing sector continues to expand, but at a slower rate than at the end of last year. Most of the survey's broad indicators of activity show a more moderate pace of growth than in December. Indicators for general activity, new orders, and shipments remained positive but fell from their readings in December. Firms continue to report a rise in prices for inputs and for their own finished goods. The region's manufacturing executives were less optimistic this month than in December, but expectations remain positive. Current Indicators Are Lower This Month The diffusion index of current activity, the broadest measure of manufacturing conditions, decreased from a revised reading of 25.4 in December to 13.2 this month. The index has remained positive for 20 consecutive months, but January's reading is the lowest in 18 months (see Chart). The percentage of firms reporting increases in activity this month (35 percent) was greater than the percentage reporting decreases (22 percent). Nearly 43 percent report no change in general activity compared to December. The new orders and shipments indexes also remained positive this month but showed similar declines. The new orders index fell 11 points; the shipments index fell 10 points. Indicators for unfilled orders and delivery times were both negative this month and fell from their readings in December. Despite the weakening in most broad indicators, the survey's employment index was slightly higher this month. The current employment index increased from a revised reading of 14 in December to 17 this month. The percentage of firms reporting higher employment (30 percent) exceeded the percentage reporting lower employment (13 percent) for the 16th consecutive month. The current work week index decreased eight points but remained positive. Prices Are Reported Higher This Month Firms continue to report higher production costs this month. More than 66 percent of the firms reported higher prices for purchased inputs in January, up from 56 percent in the previous month. The diffusion index increased markedly from a revised reading of 53.8 in December to 66.1 this month. Thirty-one percent of firms reported that prices for their own manufactured goods were higher this month, while 7 percent reported lower prices. The prices received index increased slightly from 21.1 in December to 24.7 this month. Expectations about future prices, however, were lower this month. The future prices paid index decreased 20 points, and the future prices received index fell almost 12 points. Six-Month Indicators Fall Again Overall expectations for the next six months remain generally optimistic, although the index for future activity fell for the second consecutive month. The future general activity index fell from a revised reading of 39.0 in December to 25.5, its lowest reading since March 2001 (see Chart). The percentage of firms expecting improvement in business conditions over the next six months (39 percent) continues to exceed the percentage expecting deterioration (14 percent). Other future indicators declined this month: The future new orders index fell seven points, and the future shipments index fell six points. On balance, firms expect unfilled orders to increase modestly over the next six months and delivery times to decrease. The percentage of firms that expect inventories to decrease over the next six months (29 percent) is greater than the percentage that expect them to increase (19 percent). Firms' expectations for future employment improved modestly this month. The future employment index increased from a revised 23.3 in December to 25.9 in January. More than 33 percent of the firms anticipate adding workers over the next six months, while only 7 percent plan reductions. On balance, firms expect average work hours to be nearly unchanged over the next six months. Firms were asked about their plans for spending on new plant and equipment over the next year, relative to actual spending this past year (see Special Questions). About 44 percent plan to increase capital spending in 2005 compared with 2004, 16 percent plan to spend less, and 40 percent will spend about the same as they did last year. This represents a slight decline in the percentage of firms planning higher capital outlays compared with a similar survey conducted at the beginning of 2004. The most frequently cited reasons for the planned increases in spending were the need to replace capital goods, expected high growth in sales, and high capacity utilization rates. The reasons most cited for not increasing capital spending were a limited need to replace equipment, including information technology equipment, and expected low growth in sales. Summary Indicators continue to point to expansion of the region's manufacturing sector, although indicators for general activity, new orders, and shipments declined from their readings in December. Despite evidence of moderation, 30 percent of the surveyed firms report higher employment this month and the current employment index increased modestly. Firms continue to report higher costs for inputs and higher prices for manufactured goods this month. Most broad indicators of future conditions fell from their readings in December, although the outlook for employment growth improved modestly. The percentage of firms expecting increases in capital spending in 2005 was slightly lower than the percentage at the beginning of 2004. Special note: The survey's annual historical revisions, which incorporate new seasonal adjustment factors, were released on January 13, 2005. The information is available at: http://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/historicalrevisions2005.html. Special Questions (January 2005) 1. How do you expect your firm's spending on new plant and equipment to change over the next six to 12 months relative to your actual spending over the past six to 12 months. Jan 2005 (%) Jan 2004 (%) Increase 43.8 58.2 Decrease 15.7 12.7 No change 40.4 29.1 2. What are the major factors behind your plan to increase capital spending?* % Expected growth of sales is high 48.7 Capacity utilization is currently high 46.2 Need to replace information technology equipment 33.3 Need to replace other capital goods 56.4 Cost or availability of external finance has improved 2.6 Other factors 35.9 What are the major factors behind your plan not to increase capital spending?* % Expected growth of sales is low 33.3 Capacity utilization is currently low 27.1 Limited need to replace information technology equipment 37.5 Limited need too replace other capital goods 37.5 Cost or availability of external finance has not improved 4.2 Firm's cash flow or balance sheet position has not improved 6.3 Outsourcing 12.5 Other factors 33.3 * Percentages add to greater than 100 because firms were asked to indicate more than one factor, if applicable. Summary of Returns January 2005 Jan. vs. Dec. | Six Months from now vs Jan. | | Prev. | Prev. Diff. Inc. No ch. Dec. Diff. | Diff. Inc. No ch. Dec. Diff. Index* Index | Index* Index | General Busines 25.4 35.0 42.8 21.7 13.2 | 39.0 39.3 38.7 13.8 25.5 Conditions | | New Orders 20.9 33.9 42.1 24.1 9.8 | 43.7 48.2 33.9 11.3 36.9 | Shipments 25.6 35.8 39.8 19.9 15.9 | 35.0 43.2 36.7 13.7 29.5 | Unfilled Orders 3.0 20.0 54.9 25.1 -5.2 | 7.4 19.7 61.0 11.4 8.3 | Delivery Times -1.1 10.9 69.9 14.1 -3.2 | -1.0 9.8 68.7 13.2 -3.5 | Inventories -4.5 22.3 52.6 25.1 -2.7 | -3.1 19.0 43.9 29.4 -10.4 | Prices Paid 53.8 67.4 30.6 1.3 66.1 | 62.2 49.0 32.8 6.8 42.2 | Prices Received 21.1 31.4 56.6 6.7 24.7 | 40.5 34.6 50.1 6.0 28.6 | Number of Emp. 14.0 30.4 52.9 13.4 17.0 | 23.3 32.9 52.9 7.0 25.9 | Avg. Emp. Wrkwk 16.8 25.7 57.4 16.6 9.1 | 5.4 16.9 62.8 10.9 6.0 | Capital Ex. -- -- -- -- -- | 27.4 28.8 40.9 5.9 22.9 *December data were revised, along with historical data, to incorporate new seasonal adjustment factors. 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 results reflect data received through January 14, 2005.