Philly Fed: Manufacturing Activity Continued to Expand Modestly in December

By December 19, 2013Economy

The Federal Reserve Bank of Philadelphia said that manufacturing activity continued to expand modestly in its region. The Business Outlook Survey’s composite index of general business activity rose marginally higher, up from 6.5 in November to 7.0 in December. The Philly Fed’s survey has been highly volatile in 2013, ranging from -12.5 in February to 19.8 in both July and October. As such, the composite measure has been harder to interpret, but manufacturers have cited positive growth since May, albeit with some persistent weaknesses.

The good news was the uptick in new orders (up from 11.8 to 15.4) and shipments (up from 5.6 to 13.3) in the December data. Over 35 percent of respondents said that their sales had risen in the month, with 20 percent noting declines in new orders. There were similar numbers for shipments.

Hiring remains a challenge, with manufacturers in the Philly Fed district still hesitant to add new workers, at least for now. The employment index increased from 1.1 to 2.2, suggesting very restrained hiring growth. Indeed, 64.2 percent of those taking the survey said that their employment levels were unchanged in December. On a positive note, the average employee workweek shifted from net declines (-8.6) in November to modest increases in December (6.8). In fact, those saying that the workweek rose in the month more than doubled from 12.2 percent in November to 25.2 percent in December.

Looking ahead six months, manufacturers in the region continue to be mostly upbeat about activity.  There was a slight easing in many of the future-oriented measures, but the overriding data were positive. In fact, 55.5 percent of respondents to the survey expecting higher sales, with healthy increases anticipated for shipments, employment, and capital spending. The pace of hiring growth decelerated in this survey, but over one-quarter of manufacturers in the region expect to add workers in the months ahead. Still, more than half are keeping their employment levels flat.

In a series of special questions, respondents were asked about expected cost increases for 2014. The largest increase was seen for health benefits, with an average gain of 7.9 percent. Indeed, nearly 65 percent of survey-takers said that their health insurance costs were rising by 5 percent or more. This was somewhat consistent with the most recent NAM/IndustryWeek survey findings, which reported an average increase of 8.76 percent and more than three-quarters seeing their costs rise by 5 percent or more. Wages and non-health benefits were predicted to grow by 2.3 percent and 1.9 percent, respectively, in the Philly Fed survey.

Chad Moutray is the chief economist, National Association of Manufacturers.

Chad Moutray

Chad Moutray

Chad Moutray is chief economist for the National Association of Manufacturers (NAM) and the Director of the Center for Manufacturing Research for The Manufacturing Institute, where he serves as the NAM’s economic forecaster and spokesperson on economic issues. He frequently comments on current economic conditions for manufacturers through professional presentations and media interviews. He has appeared on Bloomberg, CNBC, C-SPAN, Fox Business and Fox News, among other news outlets.
Chad Moutray

Leave a Reply