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December 2017 Manufacturing Business Outlook Survey

Results from the December Manufacturing Business Outlook Survey suggest that regional manufacturing conditions continued to improve. Indexes for general activity, new orders, and shipments were all positive this month and increased from their readings last month. The firms also reported continued expansion of employment. Most indicators reflecting expectations for the next six months suggest continued optimism.

Current Indicators Suggest Solid Growth

The diffusion index for current general activity increased from a reading of 22.7 in November to 26.2 this month (see Chart 1). Nearly 41 percent of the firms indicated increases in activity this month, up from 35 percent in November. Both the current new orders and shipments indexes also improved this month, increasing 8 points and 2 points, respectively. Although they moderated slightly, both the delivery times and unfilled orders indexes remained positive, suggesting longer delivery times and increases in unfilled orders. Inventories were, on balance, nearly steady this month: The percentage of firms reporting lower inventories (19 percent) was slightly higher than the percentage reporting higher inventories (17 percent).

The firms continued to report increases in employment. The current employment index fell 5 points but remained in positive territory, where it has been for 13 consecutive months. More than 29 percent of the responding firms reported increases in employment, while 11 percent of the firms reported decreases this month. The average workweek index declined 3 points after being in positive territory for 14 consecutive months.

Cost Pressures Moderate

The survey’s prices paid indicator suggested moderated cost pressures this month. Nearly 26 percent of the firms reported higher input prices this month, down from 39 percent in November. The current prices paid index fell 14 points this month (see Chart 2). The prices received index, however, increased modestly from 8.6 to 11.3. Nearly 16 percent of the firms reported higher prices for their own manufactured goods this month, up slightly from 14 percent last month. The largest percentage of firms (78 percent) reported steady prices.

Firms Expect Highest Cost Increases for Health Benefits

In this month’s special questions, the firms were asked about their expectations for changes in various input and labor costs for the coming year (see Special Questions). The responses indicate that the largest average annual increase is expected to be for health benefits (7.1 percent). Wages are expected to increase by an average of 2.7 percent, while nonhealth benefits are expected to rise 2.2 percent. The costs of raw materials and energy are expected to increase by an average of 3.3 percent and 1.3 percent, respectively. The firms were also asked how the expected cost increases for 2018 will compare with this year’s cost changes. For all categories of expenses, the firms forecast, on balance, increases greater than in 2017.

Firms Remain Optimistic

The diffusion index for future general activity increased from 50.1 in November to 53.5 this month (see Chart 1). The indexes for future new orders and shipments also improved, both increasing 3 points. The firms remained optimistic about expansion of employment over the next six months, although the future employment diffusion index fell 8 points. Forty-two percent of the firms expect increases in employment over the next six months; 9 percent expect decreases. The future capital spending index remained at a relatively high reading and edged 1 point higher, with 42 percent of the firms expecting capital spending increases over the next six months.

Summary

Responses to the December Manufacturing Business Outlook Survey suggest continued growth for the region’s manufacturing sector. The indexes for general activity, new orders, shipments, and employment all indicated expansion this month. The firms reported lessened input price pressures compared with last month, but slightly more firms reported price increases for their own manufactured goods. Most broad indicators reflecting firms’ expectations for the next six months improved modestly this month.

Special Questions (December 2017)

1. What percentage change in costs do you expect for the following categories in 2018?
 
Energy
(%)
Other Raw Materials
(%)
Intermediate Goods
(%)
Wages
(%)
Health Benefits
(%)
Nonhealth Benefits
(%)
Decline of more than 4% 4.8 0.0 0.0 0.0 1.6 0.0
Decline of 3–4% 1.6 0.0 0.0 0.0 0.0 0.0
Decline of 2–3% 1.6 0.0 1.6 0.0 0.0 0.0
Decline of 1–2% 3.2 0.0 0.0 0.0 0.0 0.0
No change 19.4 8.2 11.5 4.7 7.9 28.8
Increase of 1–2% 25.8 21.3 21.3 10.9 1.6 10.2
Increase of 2–3% 27.4 21.3 36.1 45.3 3.2 35.6
Increase of 3–4% 9.7 24.6 18.0 37.5 6.3 13.6
Increase of 4–5% 6.5 11.5 11.5 1.6 14.3 5.1
Increase of 5–7.5% 0.0 9.8 0.0 0.0 20.6 6.8
Increase of 7.5–10% 0.0 1.6 0.0 0.0 25.4 0.0
Increase of 10–12.5% 0.0 0.0 0.0 0.0 9.5 0.0
Increase of 12.5–15% 0.0 0.0 0.0 0.0 3.2 0.0
Increase of 15–20% 0.0 1.6 0.0 0.0 4.8 0.0
Increase of more than 20% 0.0 0.0 0.0 0.0 1.6 0.0
Median 1.5 2.5 2.5 2.5 6.3 2.5
Average 1.3 3.3 2.3 2.7 7.1 2.2

2. How do these expected costs compare with those in 2017?
 
Energy
(%)
Other Raw Materials
(%)
Intermediate Goods
(%)
Wages
(%)
Health Benefits
(%)
Nonhealth Benefits
(%)

Higher

34.5

59.3

44.8

58.3

61.7

22.4

Same

58.6

40.7

53.4

40.0

28.3

77.6

Lower

6.9

0.0

1.7

1.7

10.0

0.0


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Questions?

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