The Federal Reserve Bank of Philadelphia’s Business Outlook Survey observed improvement in December. The composite index of general business activity increased from -10.7 in November to 8.1 in December, only the second time in eight months that this index has been positive. It is important to note, as well, that November’s reading was adversely affected by Hurricane Sandy and slowdowns in production. This suggests that manufacturers in the district have rebounded from those impacts.
Stronger sales growth was behind these figures, as well. The index of new orders rose from -4.6 to 10.7, with almost 32 percent suggesting that orders were higher in December than the month before. Given that November’s report mostly showed contractions across-the-board, there was progress in most of the measures this time, with only inventory growth and delivery times still negative. Stronger growth was seen in shipments, employment, and the average workweek. Looking ahead six months, capital spending plans were also higher, as were expectations for manufacturing activity.
Almost half of the respondents anticipate raw material prices to increase, with roughly 41 percent suggesting no change in the prices they pay for inputs. In a series of special questions, manufacturers said that they expect energy costs to rise 0.8 percent on average, with other raw materials up 2.6 percent. They also anticipate wages and health benefits to rise 2.1 percent and 7.2 percent, respectively.
In general, the December survey indicates that manufacturing activity has picked up in the Philadelphia region, with modest growth expected in the coming year. Overall, though, the district’s production has been choppy at best over the course of the second half of 2012, with at least part of the progress in December stemming from the rebound in activity after Hurricane Sandy. Growth in the months ahead will hinge on moving on from the current economic uncertainties present in the larger macroeconomic picture, even as respondents to this survey were more upbeat about their prospects for the next six months.
Chad Moutray is the chief economist, National Association of Manufacturers.