Business Outlook Survey
November 2004
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, new orders,
and shipments fell from their October readings, they remain at relatively high
levels. Firms continued to report a rise in prices for inputs and finished
goods, although the price indexes for both fell slightly this month. The
region's manufacturing executives were significantly more optimistic this month
about future manufacturing growth than in October.
Current Indicators Reflect Continued Expansion
The diffusion index of current activity, the survey's broadest measure of
overall manufacturing conditions, decreased from 28.5 in October to 20.7 in
November. The index has remained positive for 18 consecutive months (see
Chart). The percentage of firms reporting an increase in activity (35 percent)
was down slightly from last month (40 percent). The survey's other broad
indicators remained positive but declined slightly. The new orders index fell
almost three points, and the shipments index fell four points. Unfilled orders
remained steady; about the same percentage of firms reported increases and
decreases. The inventory index declined nine points and fell into negative
territory for the first time in eight months. The percentage of firms reporting
declines in inventories (22 percent) slightly exceeded the percentage reporting
increases (16 percent).
Continued expansion in manufacturing is evident
in responses regarding employment. The percentage of firms reporting increased
employment (20 percent) was higher than the percentage reporting lower
employment (2 percent). The employment diffusion index, positive for 14 months,
rose three points. About the same percentage of firms (18 percent) reported
longer work hours and shorter work hours.
Price Pressures Moderate Slightly Firms
continued to report higher production costs this month. Fifty-six percent of
the firms reported higher prices for inputs, but the diffusion index for prices
paid declined three points, to its lowest reading in three months.
Firms also reported higher prices for their own manufactured goods.
Nearly 36 percent reported higher prices for their manufactured products; 8
percent reported lower prices. The diffusion index for current prices received,
however, declined five points and is at its lowest reading in five months.
In a special question this month, firms were asked about their
expectations for further cost increases next year (see Special Questions). More
than 90 percent of the executives polled expect raw material prices (including
energy) to increase next year, with the largest percentage (42 percent)
indicating they anticipate a rise between 5 to 10 percent. Twenty-five percent
of the firms, however, expect raw material and energy costs to rise more than
10 percent. All of the respondents expect health-benefit costs to rise next
year;over half expect these costs to rise more than 10 percent. With regard to
wages and salaries, more than 90 percent of the firms expect these costs to
rise between 1 to 5 percent next year. Firms were also asked whether the
expected rise in input costs has lowered production plans for 2005. About
two-thirds of the firms indicated that they have not altered production plans;
the rest indicated that production will be lower because of these expected
higher costs.
Manufacturing Optimism Boosted Overall
expectations for the next six months improved markedly. The future general
activity index jumped from 27.6 to 52.1, near its reading of three months ago
(see Chart). Nearly 60 percent of the manufacturing executives expect increases
in activity over the next six months, compared to 40 percent in the previous
month. Other future indicators showed similar increases: both the future new
orders and future shipments indexes jumped 17 points. Moreover, firms expect
unfilled orders to rise and delivery times to lengthen over the next six
months. Indicators for future delivery times and inventories returned to
positive territory this month.
Expectations regarding future employment
showed some improvement this month. The future employment index increased from
23.2 in October to 29.2 in November. A little more than one-third of the firms
anticipate adding workers over the next six months. On balance, firms expect
average work hours to increase over the next six months. Thirty-four percent of
the firms expect higher capital spending over the next six months, compared
with 30 percent last month. The future capital spending index increased about
four points this month.
Summary Although some indicators of current
business conditions declined from their readings in October, all indicators
point to continued growth in the region's manufacturing sector. At least 35
percent of the firms reported an increase in general activity, new orders, and
shipments in November. Employment increased again this month. Price pressures
are still evident in firms' survey responses, but price indicators showed a
slight moderation. Firms' responses indicate that significant cost increases
for raw materials, energy, and health benefits are expected to continue next
year. 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 (November 2004)
1. What percentage change in costs do you
expect for the following categories in 2005? |
| |
|
|
Increase |
|
| |
No Change |
1-5% |
5-10% |
>10% |
| Raw Materials (including
energy) |
4.2% |
27.1% |
41.7% |
25.0% |
| Intermediate goods |
22.9% |
39.6% |
29.2% |
4.2% |
| Health benefits |
0.0% |
8.3% |
37.5% |
54.2% |
| Non-health benefits (including
pensions) |
29.2% |
45.8% |
20.8% |
0.0% |
| Wages and salaries per worker |
4.2% |
93.8% |
2.1% |
0.0% |
| Professional services and
transportation |
14.6% |
52.1% |
27.1% |
4.2% |
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Row totals do not add to 100 percent because some
firms did not respond or reported that they expect price decreases (about 2
percent in any one category).
2. To what extent has any expected
rise in input costs lowered your production plans for 2005?
|
|
|
| Not at all |
68.8% |
|
| Slightly |
18.8% |
|
| Moderately |
10.4% |
|
| Significantly |
2.1% |
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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
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