Business Outlook Survey

November 2006

Economic conditions in the region’s manufacturing sector improved slightly in November, according to firms polled for this month’s Business Outlook Survey. Indicators for general activity and shipments increased modestly from their readings in October, but indicators for new orders and employment weakened. Firms continued to report higher prices for inputs and their own manufactured goods, although the survey’s price indicators continued to decrease. The region’s manufacturing executives were slightly less optimistic about future activity, with most future indicators declining from their readings in October.

Indicators Suggest Growth
The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased from -0.7 in October to 5.1 this month.  The index was slightly below zero in August and September, following 14 consecutive months of positive readings (see Chart 1). Thirty percent of the firms reported increased activity this month; 25 percent reported decreased activity. The new orders and shipments indexes provided mixed signals of growth this month. The new orders index fell 17 points, to -3.7, erasing the 15-point gain of the previous month. The shipments index remained positive and edged one point higher than in October. Delivery times lengthened this month: The delivery time diffusion index increased 15 points to its first positive reading in three months. The unfilled orders index remained negative but rose seven points.

Evidence of weakness in manufacturing growth is suggested by replies concerning
employment and hours worked this month. The percentage of firms reporting
increased employment was matched by the percentage of firms reporting decreased
employment (21 percent) and the current employment index fell nine points from
its October reading. The average workweek index remained close to zero, with
the percentage of firms reporting increased hours the same as the percentage
reporting decreased hours (22 percent).

Price Pressures Moderate Again
Respondents reported higher costs for inputs again this month, but increases were not as widespread as in previous surveys. The prices paid index fell five points this month. The index has fallen in four consecutive months and is now at its lowest reading in eight months (see Chart 2). Thirty-six percent of the firms reported higher input prices; 9 percent reported lower input prices.

Seventeen percent of the firms reported higher prices for their final manufactured goods, down slightly from 22 percent last month. Eleven percent of the firms reported lower prices this month; the prices received index fell 12 points, to its lowest reading in 15 months (see Chart 2).

Forecast Remains Moderate
Expectations for future manufacturing growth moderated slightly this month, following a 17-point increase last month. Indicators for future activity, new orders, and shipments remained positive but decreased from their readings in October. The future general activity index decreased from 16.7 to 12.4 (see Chart 1). Paralleling the decline in the future general activity index, the index for future new orders and shipments decreased 12 points and 11 points, respectively. The future employment index was virtually unchanged from October. Firms’ expectations for future capital spending showed a notable improvement: The diffusion index for capital expenditures rose 12 points, to its highest mark in eight months.

Summary
Conditions in the region’s manufacturing sector improved slightly this month. Indicators for general activity and shipments suggest some growth, although indicators for new orders and employment weakened. Input price pressures continued to moderate, and fewer firms reported increases for finished manufactured goods this month. Indicators for the next six months suggest that firms are slightly less optimistic about future conditions this month than they were in October.

Summary of Results Table | Chart 1 Chart 2

Business Outlook Survey Historical Charts

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