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July 2008 Business Outlook Survey

Survey Press Conference

Listen to the press conference for this month's survey. Audio Interview

The region’s manufacturing sector continued to contract this month, according to firms polled for the July Business Outlook Survey. Indexes for general activity, new orders, shipments, and employment were all negative again this month and little changed from their readings in June. Despite the overall weakness in current activity, slightly more than three-fourths of respondents reported cost increases this month, and more than one-third reported higher prices for their own manufactured products. The region’s manufacturing executives remained generally optimistic that manufacturing conditions will improve over the next six months.

Indicators Reflect Continued Weakening

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, edged slightly higher, from -17.1 in June to -16.3 this month. The index has now been negative for eight consecutive months (see Chart). Other broad indicators remained negative and little changed. The survey’s new orders index was essentially unchanged at -12.1, and the current shipments index decreased one point, from -6.7 in June to -8.0 this month. Indexes for unfilled orders and delivery times, already negative, declined six points and three points, respectively.

Indicators for employment and hours worked were consistent with negative readings in other broad indicators. The current employment index declined from -6.9 in June to -7.3, its sixth negative reading in seven months. The percentage of firms reporting a decrease in employment (24 percent) exceeded the percentage reporting an increase (17 percent). The average workweek index fell four points; it has now been negative for seven consecutive months.

Manufacturers Continue To Report Price Pressures

A larger share of firms — 77 percent, up from 72 percent in June — reported higher input prices this month. The prices paid index increased six points, to 75.6, its highest reading since March 1980. With regard to prices for their own manufactured goods, the largest percentage (51 percent) reported no price change from June, but the percentage of firms reporting higher prices this month (37 percent) was only slightly higher than the previous month’s percentage (35 percent). The prices received index, however, edged slightly lower, from 29.7 in June, to 28.8 in July.

In special questions this month, firms were asked about recent cost increases and the nature of their pricing. Sixty-one percent of the firms indicated they had increased base prices since the beginning of the year, although 38 percent said they have been unable to pass on cost increases. Moreover, 29 percent have instituted surcharges, and 9 percent have existing price escalation clauses covering cost increases. The respondents also indicated that a large percentage of their suppliers have instituted surcharges covering recent cost increases: 87 percent of the firms reported surcharges for transportation, 52 percent for commodities, and 44 percent for energy. Looking forward regarding their own product pricing, 33 percent of the firms indicated that they are more likely to use escalation clauses in the future, and 31 percent indicated that they are more likely to use surcharges.

Future Indicators Reflect Optimism

Despite declines in current activity, area manufacturers expect improvement in conditions over the next six months. The future general activity index remained positive but fell modestly, from 21.3 in June to 18.0 this month (see Chart). However, the indexes for future new orders and shipments increased slightly. On balance, firms expect an increase in employment levels over the next six months. The percentage of firms expecting to add workers (33 percent) is greater than the percentage expecting to make cuts (15 percent), and the future employment index increased 10 points.


The region’s manufacturing sector showed continued weakness in July; all broad indicators of activity were in negative territory and little changed from the previous month. Cost pressures remain widespread, with a larger share of firms reporting input price increases this month. A significant share of the firms reported that suppliers have instituted transportation, commodity, or energy surcharges. The share of firms reporting higher prices for their own manufactured goods, however, was only slightly higher than the previous month’s percentage. Despite the weakness in current activity, manufacturers continue to expect conditions to improve over the next six months.

Special Questions (July 2008)

1. Since the beginning of the year, how have you passed on cost increases for energy and other materials to your customers? (check all that apply)
We have increased our base prices
We have been unable to pass on cost increases to our customers
We have instituted price surcharges
We have existing contracts that include price escalation clauses covering increased costs
2. Have any of your suppliers instituted surcharges and for what costs? (check all that apply)
3. Looking forward, how would you characterize surcharges and/or escalation clauses relative to your traditional pricing structure? (check all that apply)
Escalation clauses incorporating price adjustments are more likely to be used in the future
Surcharges are more likely to be used in the future
It is unlikely that we will ever institute surcharges or cost escalation clauses
These have always been an important element of pricing
We are considering instituting surcharges for the first time

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Questions about the Business Outlook Survey and its historical data can be addressed to Mike Trebing. E-mail