The Federal Reserve Bank of Philadelphia said that manufacturing activity rebounded in March from weather-related weaknesses the month before. The Business Outlook Survey’s composite index of general business activity shifted from contraction in February (-6.3) to a decent expansion in March (9.0). The percentage of respondents who said that conditions had worsened fell from 31.4 percent in February to 24.2 in March, with one-third of those taking the survey saying that business was better in the latest month.
Taking the February data out of the analysis, manufacturers have been positive in their outlook since June, mirroring the upturn that we have seen in the national economy in the second half of last year. The average composite index measure over the past 10 months (including February) was 10.9, suggesting that manufacturers in the Philly Fed region have continued to grow at a pretty reasonable rate.
In March, the index for new orders increased from -5.2 to 5.7, with 31.8 percent of respondents saying that their sales were higher in the month. This was up from 23.9 percent who said the same thing in February. Similar findings were observed for shipments (up from -9.9 to 5.7) and the average workweek (up from -7.0 to 3.1). One area where there was a bit of weakness was hiring. The pace of employment growth eased slightly (down from 4.8 to 1.7), but remained positive. Two-thirds of manufacturers completing the survey said that their employment levels were unchanged.
Fortunately, the manufacturing community in the Philadelphia Fed district remains mostly positive about the coming months. Nearly half of them said that they expect sales and shipments to be higher six months from now, with just over one-third expecting to add workers and increase capital spending.
Moreover, when asked about capital expenditures for 2014, manufacturers mostly anticipated increased levels of spending on non-computer equipment (a net percentage of 17.1 percent), software (14.3 percent), computer and related hardware (12.9 percent), structures (5.7 percent), and energy-saving equipment (2.9 percent). Half of the respondents said that they would increase capital spending because of the pickup in sales, with the need to replace outdated capital equipment (47.1 percent) and information technology equipment (41.2 percent) closely following.
Chad Moutray is the chief economist, National Association of Manufacturers.