One of the more volatile and closely watched manufacturing surveys of late has been the one from the Philadelphia Federal Reserve Bank. The Business Outlook Survey, which was released today, found that general business conditions softened somewhat, with the index falling from 8.7 to 3.6. This suggests manufacturing activity is growing, but at a slower rate than last month. Still, it is important to keep these numbers in perspective. The November reading is a vast improvement from the -30.7 finding observed in August or the -17.5 from September. Indeed, a “softening” of activity is much better than the reported “contraction” just two months ago – a sign of progress.
The numbers behind the November index are mixed. The pace of growth in new orders and shipments slowed, but remained positive. Employment and inventories grew at a faster pace, however. The jobs statistics are welcome news, with the indices for both the number of employees and the average workweek rising.
In a series of special questions, respondents were asked about their capacity utilization rates relative to last year. The average utilization rate was found to be 74.7 percent, or slightly higher than the 73.1 percent observed in 2010. When asked about their firm’s spending on plant and equipment, more manufacturers said that they were increasing versus decreasing their spending this year compared to last year (34.7 percent to 33.3 percent). Yet, this represents a reduction in capital spending intentions, as the gap was much larger in 2010 when it was 37.8 percent to 19.5 percent.
As with other surveys, manufacturers in the region were positive about the next six months. The forward-looking index of general business activity rose from 27.2 in October to 41.9 in November. Overall measures of production were higher, including indicators for new orders, shipments, employment and capital spending. Inventories were the other component which was expected to contract.
Chad Moutray is chief economist, National Association of Manufacturers.