Nonmanufacturing Business Outlook Survey February 2023 Note: Survey responses were collected from February 6 to February 16. Nonmanufacturing business activity continued to expand overall this month, according to the firms responding to the February Nonmanufacturing Business Outlook Survey. The index for general activity at the firm level increased, and the indexes for new orders and sales/revenues remained positive but declined. The indexes for full- and part-time employment decreased this month but remained positive. The prices paid and prices received indexes both rose this month. The respondents continue to expect growth over the next six months. Current Indicators Remain Positive The diffusion index for current general activity at the firm level rose 3 points to 15.8, its third consecutive increase since December. The share of firms reporting increases (42 percent) exceeded the share reporting decreases (27 percent). The new orders index fell 5 points to 6.2 this month. More than 33 percent of the firms reported increases in new orders (up from 31 percent), while 27 percent reported decreases (up from 20 percent). After a sharp increase last month, the sales/revenues index decreased from 20.3 to 14.5. Over 41 percent of the firms reported increases in sales/revenues, while 27 percent reported decreases. The current regional activity index rose to 3.2 in February, its first positive reading since July. Firms Report Overall Employment Increases The firms reported overall increases in both full- and part-time employment. The full-time employment index edged down 1 point to 15.9. The share of firms reporting increases in full-time employment (23 percent) exceeded the share reporting decreases (7 percent); most firms (68 percent) reported no change. The part-time employment index declined 2 points to 3.2. Most firms (63 percent) reported steady part-time employment, while 17 percent of the firms reported increases and 13 percent reported decreases. The average workweek index increased 8 points to 9.0. Firms Continue to Report Price Increases Price indicator readings suggest widespread increases in prices for inputs and the firms' own goods and services, and both indexes increased this month. The prices paid index – which has declined more than 30 points since October – increased 2 points to 48.5 in February. More than 51 percent of the firms reported increases in input prices, while 3 percent reported decreases; 44 percent reported stable prices. Regarding prices for the firms' own goods and services, the prices received index rose 8 points to 31.6 this month. More than 35 percent of the firms reported higher prices, 4 percent reported lower prices, and 52 percent reported no change. Firms Expect Lower Increases in Prices from Last Quarter In this month's special questions, the firms were asked to forecast the changes in prices of their own products and for U.S. consumers over the next four quarters (see Special Questions). Regarding their own prices, the firms' median forecast was for an increase of 3.5 percent, down from 4.0 percent when the question was last asked in November. The firms' reported own price change over the past year was 3.0 percent. The firms expect their employee compensation costs (wages plus benefits on a per employee basis) to rise 5.0 percent over the next four quarters, unchanged from November. When asked about the rate of inflation for U.S. consumers over the next year, the firms' median forecast was 5.0 percent, down from 6.0 percent in November. The firms' median forecast for the long-run (10-year average) inflation rate was 4.0 percent, down from 5.0 percent in November. Future Indicators Remain Positive The future activity indexes suggest firms expect growth at their own companies and in the region over the next six months. The diffusion index for future activity at the firm level ticked down 1 point to 23.9 this month. The share of firms expecting increases (49 percent) exceeded the share expecting decreases (26 percent). The future regional activity index increased from 2.4 to 12.4 this month. Summary Responses to this month's Nonmanufacturing Business Outlook Survey suggest continued expansion in nonmanufacturing activity in the region. The indicator for firm-level general activity increased, while the indexes for sales/revenues and new orders both remained positive but decreased. The indexes for both full- and part-time employment continue to reflect overall increases in employment. Both price indexes increased this month. Overall, the respondents continue to expect growth over the next six months. Special Questions (February 2023) Please list your expected annual percent change with respect to the following: Current Previous Forecast Forecast (Nov. 2022) For your firm: Forecast for next year (2023:Q1–2024:Q1) 1. Prices your firm will receive (for its own goods and services sold). 3.5 4.0 2. Compensation your firm will pay per employee (for wages and benefits). 5.0 5.0 Last year's price change (2022:Q1–2023:Q1) 3. Prices your firm did receive (for its own goods and services sold) over the last year 3.0 3.8 For U.S. consumers 4. Prices consumers will pay for goods and services over the next year. 5.0 6.0 5. Prices U.S. consumers will pay for goods and services over the next 10 years (2023–2032). 4.0 5.0 The numbers represent medians of the individual forecasts (percent changes). For question 5, the firms reported a 10-year annual-average change. Nonmanufacturing Business Outlook Survey February 2023 February vs. January Previous Diffusion No Diffusion Index Increase Change Decrease Index General Activity -6.5 25.7 46.7 22.5 3.2 - in Region General Activity 12.7 42.4 27.7 26.7 15.8 - at Firm New Orders 10.8 33.4 18.3 27.2 6.2 Sales/Revenues 20.3 41.1 30.3 26.6 14.5 Unfilled Orders -0.4 11.0 29.9 8.0 2.9 Inventories 6.5 6.3 13.1 12.6 -6.3 Prices Paid 46.1 51.2 44.2 2.7 48.5 Prices Received 24.1 35.1 52.4 3.5 31.6 Full-Time Emp. 16.5 23.2 68.3 7.2 15.9 Part-Time Emp. 5.3 16.5 62.7 13.4 3.2 Avg. Emp. Wrkwk. 0.8 16.2 76.3 7.2 9.0 Wage and Ben. 46.1 48.5 47.1 4.3 44.2 Cap. Ex. - Plant 10.7 19.6 45.6 11.1 8.5 Cap. Ex. - Equip. 19.5 33.8 38.8 10.4 23.4 Six Months from Now vs. February ` Future Activity 2.4 34.5 42.1 22.0 12.4 - in Region Future Activity 24.7 49.4 25.1 25.5 23.9 - at Firm Notes: (1) Diffusion indexes represent the percentage indicating an increase minus the percentage indicating a decrease. (2) All data are seasonally adjusted. (3) Percentages may not sum to 100 percent because of rounding, omission by respondents, or both. (4) Survey results reflect information received through February 16, 2023. Federal Reserve Bank of Philadelphia Nonmanufacturing Business Outlook Survey Released: February 21, 2023, at 8:30 a.m. ET.