Business Outlook Survey
December 2004
Activity in the region’s
manufacturing sector continues to expand, according to firms surveyed for this
month’s Business Outlook Survey. Most indicators pointed to continued
expansion in December, with increases recorded in the indexes for general
activity, new orders, and shipments. Nearly one-quarter of the firms reported
higher employment. The survey’s price measures suggest continued cost
pressures, but there was a slight moderation in upward price pressure for final
manufactured goods. Expectations for overall manufacturing growth remained
positive, although most indicators fell from their November readings.
Current Indicators Are Higher This Month The
diffusion index of current activity, the broadest measure of manufacturing
conditions, increased from 20.7 in November to 29.6 this month. The index has
remained positive for 19 consecutive months and is at its highest reading in
five months (see Chart). The percentage of firms reporting increases in
activity this month (37 percent) exceeded the percentage reporting decreases (8
percent). The new orders and shipments indexes also showed improvement this
month: The new orders index increased four points, and the shipments index
increased nearly eight points. Corroborating the stronger growth in broad
indicators, December’s index for unfilled orders was positive for the
first time in three months. Delivery times remained steady. The inventory index
declined one point and has been in negative territory for the past two months.
Continued expansion in manufacturing is evident in responses regarding
employment and hours worked. The percentage of firms reporting increased
employment (24 percent) was higher than the percentage reporting lower
employment (10 percent). Still, the employment diffusion index, positive for 15
consecutive months, fell three points. More firms reported longer work hours
this month (21 percent) than shorter work hours (3 percent). The current
workweek index increased 18 points to its highest reading in 10 months.
Price Pressures Moderate Slightly Firms
continued to report higher production costs this month. Fifty-four percent
reported higher prices for inputs, but the diffusion index for prices paid
declined two points to its lowest reading in five months.
Firms also
reported higher prices for their own manufactured goods. Twenty-five percent
reported higher prices for their manufactured products; 5 percent reported
lower prices. The diffusion index for current prices received, however, fell
eight points and is now at its lowest reading in eight months.
Six-Month Forecasts Are Less Optimistic Overall
expectations for the next six months remain generally optimistic, although the
index for future activity fell this month: from 52.1 in November to 41.2 (see
Chart). Other broad future indicators showed similar declines: The future new
orders index fell 11 points, and the future shipments index fell 14 points.
Firms expect unfilled orders to increase modestly over the next six months and
delivery times to hold near their current levels. The percentage of firms that
expect inventories to increase over the next six months (18 percent) is about
the same as the percentage expecting them to decrease (19 percent).
Firms’ expectations for future employment dipped somewhat this
month. The future employment index decreased from 29.2 in November to 21.4 in
December. A little less than one-third of the firms anticipate adding workers
over the next six months. On balance, firms expect average work hours to
increase somewhat over the next six months. Thirty-six percent of the firms
expect higher capital spending over the next six months, and the future capital
spending index edged slightly higher this month.
In special questions
this month, firms were asked about the impact of the recent declines in the
value of the dollar on their businesses: the impact of higher prices for
imports and lower export prices as well as the net effect of the changes (see
Special Questions). With regard to imports, 54 percent of the firms indicated
negative effects from the falling dollar, while only 9 percent indicated some
positive effects. With regard to exports, 38 percent indicated positive effects
and 7 percent negative effects. When asked to balance the net effect of the
changes, the firms were almost evenly divided between those reporting net
negative effects (31 percent) and those reporting net positive effects (29
percent).
Summary Most indicators of current activity
improved this month and continue to reflect growth in the region’s
manufacturing sector. At least 37 percent of the firms reported an increase in
general activity, new orders, and shipments in December. Employment increased
again this month. Price pressures are still evident in firms’ survey
responses, but price indicators showed a slight moderation. Although
manufacturers are generally optimistic about growth in their sector,
expectations for the next six months fell somewhat in
December.
Special note: The survey’s annual
historical revisions, which incorporate new seasonal adjustment factors, will
be released on January 13, 2005, at noon E.T. The information will be made
available at http://www.PhiladelphiaFed.org/econ/bos/boshistory.html.
Special
Questions (December)
The value of the dollar has recently declined
on a trade-weighted basis. Considering both the cost of imported products and
exports of your own products, which of the following best characterizes the
effect of the decline in the dollar on your business? |
| |
Effect on your business of change in |
Net effect on your business |
|
import prices
|
exported
products |
| Substantial negative effect
|
10.1% |
2.6% |
7.5% |
| Some negative effect |
44.3% |
3.9% |
23.7% |
| No effect |
25.3% |
38.9% |
32.5% |
| Some positive effect |
5.1% |
27.3% |
21.3% |
| Substantial positive effect |
3.8% |
10.4% |
7.5% |
| Not applicable |
11.4% |
16.9% |
7.5% |
|
|
|
|
| Total |
100.0% |
100.0% |
100.0% |
|
Summary of Results Table
Text version
Release, Tables, and Chart (pdf
format)
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Requests for information or comments about the
Business Outlook Survey can be sent to mike.trebing@phil.frb.org
|