The Federal Reserve Bank of Philadelphia said that manufacturing activity expanded in February at its strongest rate since November 1983. The composite index of general business activity rose from 23.6 in January to 43.3 in February, with 48.2 percent of survey respondents suggesting that conditions had improved this month. Just 4.8 percent said that conditions had worsened. Other measures were also uplifting, including new orders (up from 26.0 to 38.0), shipments (up from 20.5 to 28.6) and the average employee workweek (up from 6.8 to 13.6). Growth in hiring (down from 12.8 to 11.1) continued to expand modestly despite some easing in the current release.
Manufacturers in the Philadelphia Fed district were also very optimistic in the outlook for the next six months. While the forward-looking composite index slipped a little, down from 56.6 to 53.5, it continued to report strong growth in the months ahead. In fact, more than 58 percent of those completing the survey felt that new orders and shipments would increase over the next six months, and more than 30 percent anticipate additional hiring and capital spending. At the same time, there is also an expectation that pricing pressures will accelerate, with 53.4 percent suggesting that input prices should rise moving forward.
Along those lines, respondents were asked about expected price changes over the next year in a series of special questions. Manufacturing leaders anticipate consumer prices rising by 2.2 percent at the annual rate over the next year, and they see compensation (including wages and benefits) increasing by 3.0 percent.