The Federal Reserve Bank of Philadelphia’s Business Outlook Survey reflects stronger sentiment on manufacturing activity in July. The composite index suggests that the sector has begun to recover from springtime weaknesses, up from -5.2 in May to 12.5 in June to 19.8 in July. This was the highest level since March 2011. Overall, the numbers suggest modest to decent growth in the sector, particularly moving forward.
More than anything, they find that manufacturing leaders who responded to the survey were more optimistic about general business activity, both now and over the course of the next six months. Looking just at the future-oriented measure, 51.5 percent of respondents expect for economic conditions to improve, with just 6.6 percent anticipating declines. Two months ago, those figures were 44.5 percent and 12.2 percent, respectively, suggesting some progress in perceptions in a short period of time.
Looking just at the July data, respondents indicated continued growth in many of the measures of manufacturing activity. For instance, the index for shipments rose from 4.1 in June to 14.3 in July, with 38 percent of those taking the survey saying that their shipments were higher for the month. Nearly one-quarter still report declining shipments, which is a sizable figure and suggests continued weaknesses. At the same time, the pace of new orders eased slightly for the month (down from 16.2 to 10.2), but still indicate relatively strong growth.
One area where there continues to be weaknesses, both in the Philly Fed survey and elsewhere, is in the employment measures. Hiring shifted from net declines in June (-5.4) to modest gains in July (7.7). Nearly 70 percent of respondents said that their hiring was unchanged for the month, which is consistent with sluggish job gains nationally for the sector. In terms of utilization, there was a slight pickup in the average workweek, up from 0.8 to 6.6.
As noted earlier, the forward-looking composite measure increased from 33.7 to 44.9 for the month, with gains anticipated across-the-board. Nearly 60 percent expect their sales to be higher in the second half of the year, suggesting cautious optimism ahead. Moreover, while roughly half of respondents plan to keep hiring and capital spending unchanged, both are expected to be higher on net.
Chad Moutray is the chief economist, National Association of Manufacturers.
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