Business Outlook Survey
August 2004
Activity in the region's manufacturing sector continues to
expand, according to firms surveyed for this month's Business Outlook Survey.
Most of the survey's broad indicators of activity, however, suggest a more
moderate pace of growth than in July. Indicators for new orders, shipments, and
employment remained positive but fell from their readings in July. Firms
continue to report a rise in prices for inputs and for their own finished
goods. Despite the decline in the survey's indicators for current activity,
expectations for general growth over the next six months remain very positive.
Pace of Growth Moderates
The diffusion index of
current general activity, the broadest measure of manufacturing conditions,
decreased from 36.1 in July to 28.5 in August, suggesting slower growth. The
index has remained positive for 15 consecutive months. The new orders and
shipments indexes also remained positive but fell back from their readings in
July. The current new orders index fell notably, by 16 points (see Chart), to
its lowest reading in three months. The current shipments index fell, but by a
more modest nine points.
Corroborating the slower growth in the broad
indicators, the indexes for both delivery times and unfilled orders fell this
month. The delivery times index dropped below zero for the first time in seven
months and fell 22 points from its July reading. The unfilled orders index fell
17 points.
The overall moderation in manufacturing is evident in
responses about employment. The percentage of firms reporting increased
employment this month (24 percent) was higher than the percentage reporting
lower employment (7 percent). Still, the employment diffusion index fell seven
points. The average workweek index remained positive this month as well but
fell four points from July's reading.
Price Indexes Are Higher
Again
Survey responses suggest upward pressure on costs as well as
on the prices of manufactured goods. Nearly 55 percent of the firms reported
higher input prices this month, and only 1 percent reported lower prices. The
prices paid diffusion index increased from 46.3 in July to 53.7, its highest
reading in three months. Thirty-eight percent of the firms reported higher
prices of their own manufactured goods this month; only 4 percent reported
lower prices. The prices received index was up slightly from July's reading,
which was the highest since 1989.
Expectations for future prices inched
higher again this month. The future prices paid index increased three points,
and the future prices received index increased nine points. Both indexes have
increased about 12 points over the past three months.
In special
questions this month, firms were asked about one aspect of cost increases since
the beginning of the year-the rise in compensation per worker (see Special
Questions). Seventy-eight percent of respondents indicated that compensation
per worker had risen since the beginning of the year. Forty-eight percent
indicated that compensation per worker had risen at the same rate as
productivity growth. The firms were nearly evenly divided with regard to
whether compensation per worker had grown faster (26 percent) or slower (24
percent) than the rate of productivity. A larger percentage of firms attributed
the rise in compensation per worker to higher benefit costs (31 percent) than
higher wages (15 percent), while 52 percent indicated both factored equally.
Optimism Improves
Despite the moderation in current
activity, overall expectations for the next six months remain optimistic and,
in fact, improved notably this month. The future general activity index
increased 16 points, rising from 36.3 in July to 52.7 this month, the highest
reading in seven months. Nearly 55 percent of the manufacturing executives
expect increases in business activity over the next six months; only 2 percent
expect decreases. Other future indicators showed similar improvement this
month. The future new orders index increased 17 points, and the future
shipments index increased 12 points (see Chart).
Expectations regarding
future employment improved slightly this month. The future employment index
also increased six points, and 32 percent of the manufacturers plan to add to
their payrolls over the next six months.
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 July. Firms reported higher prices for inputs
and for their own manufactured goods again this month. Despite evidence of
moderation in the pace of growth this month, manufacturing executives expressed
increased optimism about growth over the next six months.
Special Questions (August
2004)
Has compensation per worker (wages plus benefits) risen at
your firm since the beginning of 2004?
|
| |
|
Percentage |
|
| |
|
|
|
| Yes |
|
77.7% |
|
| No |
|
20.5% |
|
| No response |
|
1.8% |
|
| Total |
|
100.0% |
|
|
|
|
|
|
|
|
|
| If yes, is compensation per
worker increasing [choice] the rate of productivity growth? |
| |
|
|
| The same as |
48.3% |
|
| Faster than |
26.4% |
|
| Slower than |
24.1% |
|
| No response |
1.2% |
|
| Total |
100.0% |
|
|
|
|
|
|
|
If
compensation per worker is rising, what is the primary reason? |
| |
|
| Higher benefit costs |
31.0% |
| Higher wages |
15.0% |
| Both equally |
51.7% |
| No response |
2.3% |
| Total |
100.0% |
Summary of Results Table
Text version
Release, Tables, and Chart (pdf
format)
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Business Outlook Survey Page
Requests for information or comments about the
Business Outlook Survey can be sent to mike.trebing@phil.frb.org
|