The Federal Reserve Bank of Philadelphia said that manufacturing activity has now expanded for eight straight months. The Business Outlook Survey’s composite index of general business activity rose from 6.4 in December to 9.4 in January. Historical data points were revised to reflect new seasonal adjustments, including the December data. The bottom line was the fact that manufacturers have noted positive growth since contracting in May.
With that said, the pace of sales growth slowed in this report to its slowest pace since May. The index for new orders dropped from 12.9 to 5.1. Still, one should not over interpret this decline, as the average of this index from September to December was 17.9. This suggested strong growth over that time frame, with January’s sales extending those gains. Over one-quarter of manufacturing respondents said that their new orders had increased in January.
Shipments (up from 11.9 to 12.1) and hiring growth (up from 4.4 to 10.0) both moved in the right direction. Nearly one-third of those taking the survey noted rising shipments for the month, with 20.6 percent saying that their shipments had declined. In contrast to these figures, the average employee workweek (down from 4.8 to -5.3) and inventory growth (down from 16.0 to -19.6) both shifted into contractionary territory. Nonetheless, on both of these measures, roughly 60 percent of the responses were neutral.
The other key headline is the fact that manufacturers in the Philly Fed region continue to be mostly upbeat about 2014. In a special question on employment, 41.1 percent of respondents said that they plan to increase hiring this year, with just 9.6 percent planning reductions. The top factors that are restraining hiring were: (1) firm wants to keep operating costs low, (2) expected growth of sales is low, (3) firm cannot find workers with required skills, and (4) there is uncertainty about the cost of health insurance.
Along those lines, over half expect new orders to increase over the coming six months, and 24.0 percent anticipate more capital spending. There was some easing in optimism from the December survey in a few of these measures, but the overriding trend is one that is mostly positive. Nonetheless, inventories stockpiles are anticipated to shrink marginally, and pricing pressures are predicted to accelerate.
Chad Moutray is the chief economist, National Association of Manufacturers.
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