The Federal Reserve Bank of Philadelphia’s Business Outlook Survey contracted again in May, declining for the first time since February. The composite index of general business conditions declined from 1.3 in April to -5.2 in May. The index was brought lower by reductions in new orders, shipments, and employment. Specifically, the new orders index dropped from -1.0 to -7.9, with over one-third of respondents saying that their sales had declined in the past month.

The indices looking at current activity declined, indicating some sluggishness this month. For instance, the shipments index shifted from modest growth in April (9.1) to a modest contraction in May (-8.5). The percentage of respondents saying that their shipments had declined from the previous month increased from 18.8 percent in April to 32.4 percent in May. The average workweek, unfilled orders, and delivery times were all negative, as well.

Unlike the Empire State Manufacturing Survey from the New York Fed, which was released yesterday, manufacturers in the Philly region were hiring fewer workers in May. The index for employment declined from -6.8 to -8.7. The two surveys did agree, though, on the forward-looking hiring measures. The index of expected employment six months from now rose from 8.2 to 10.0, suggesting that manufacturers plan to increase their hiring in the coming months moderately.

Indeed, manufacturers in the Philly Fed region remain cautiously optimistic about the future. The general business activity measure for six months from now rose from 19.5 to 32.3. Almost 45 percent of those completing the survey anticipate better economic conditions in the coming months, with 36.3 expecting them to be the same. Manufacturers are also planning for increased sales, shipments, and capital spending in the second half of 2013.

Regarding inventories, 58.1 percent of those answering a special question on the topic said that their stockpiles were “about right for current economic conditions.” Just over one-quarter of them expect to decrease their inventories in the second quarter, and in fact, the forward-looking index for inventories reflects a slight contraction.

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

Here is the summary from this week’s Monday Economic Report:

According to the latest economic data, U.S. manufacturers are seeing slow-to-decent progress in their businesses. While there continue to be challenges, many of the regional Federal Reserve Bank surveys reported continued expansion, even if the pace of growth might have slowed. The Dallas Fed survey has grown for four straight months on higher sales and production data, and businesses in the region were overwhelmingly positive about future activity over the coming months. At the other end of the spectrum, the Kansas City Fed’s composite index has contracted for six consecutive months. Both new orders and shipments were unchanged in February after falling sharply in January, and respondents tended to echo some of the frustrations of businesses in the area. Frequent concerns ranged from uncertainties about the economy to concerns about healthcare costs. Even in the Kansas City report, though, manufacturers expressed cautious optimism about the next six months – a constant sentiment across all the surveys.

This morning, we will get the latest read on the manufacturing sector from the Institute for Supply Management (ISM). The ISM purchasing managers’ index is expected to show a very modest gain in activity in March, following the survey’s uptick from 53.1 in January to 54.2 in February. Sales should drive the index higher, but other data show that these gains have been somewhat spotty lately. The Census Bureau’s advance estimates for new durable goods orders rose a very strong 3.6 percent in February, but this followed a 3.8 percent loss in January. Much of the volatility in that indicator has been due to the ups and downs in aircraft orders. Removing the transportation sector from of the analysis would have yielded a decline in new orders.

Motor vehicle demand appears in several of the indicators released last week. The durable goods report indicates that auto sales increased by a very robust 3.8 percent in February, and a rebounding motor vehicle sector helped to lift the Chicago Fed’s Midwest Manufacturing Index. Year-over-year production in the auto industry in the Chicago Fed District was up 15.2 percent, a strong figure that helps explain why the Midwest has fared so well since the end of the recession. These indicators were also consistent with analysis from a couple weeks ago that showed retail sales gains largely due to increased auto purchases and higher gasoline prices.

On the consumer front, personal incomes were up 1.1 percent in February. Spending increased 0.7 percent. The nondurable goods sector benefited the most from the increased spending. The sector was up 1.9 for the month. Manufacturing employees, meanwhile, benefitted from the pickup in activity through higher total wages and salaries. At the same time, the two consumer sentiment surveys out last week moved in opposite directions. The Conference Board’s report dropped significantly over jobs and income concerns. Respondents also cited across-the-board federal spending cuts as a factor. The University of Michigan’s consumer confidence figure reversed an earlier estimate and found the public more positive than the month before, with its index rising for four straight months. The update from the initial report suggests that some of the concerns about the economy in many of the earlier responses might have dissipated as the month progressed.

Aside from the ISM report, other economic highlights due out this week include the latest figures on employment and international trade. Nonfarm payrolls are expected to increase by around 200,000 in March, indicating reasonable job growth last month just shy of the 236,000 net new workers added in February. Manufacturing hiring growth should also closely mirror the previous month’s report. On the trade front, we will be looking to see whether recent improvements in many of our largest markets – with the notable exception of Europe – will lead to increases in exports of manufactured goods.

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

The Federal Reserve Bank of Philadelphia’s Business Outlook Survey indicated that manufacturing activity was growing in March for the first time since December. The composite index of general business conditions rose from -12.5 in February (a fairly steep contraction) to +2.0 in March (a very slight expansion). To the extent that this figure is once-again positive, that is a good thing. But, it also means that manufacturers are not experiencing much growth, with several of the key indicators just barely above the neutral point of zero.

For instance, the index for new orders increased from -7.8 to +0.5 in the month. In all, 51.5 percent of the respondents to this survey said that their sales levels were unchanged from the month before (which had declined for two straight months), with the rest almost evenly split between rising or declining new orders activity. This shows progress in that sales appear to have stabilized (in that they stopped falling), but beyond that, it is hardly a reflection of robust growth. Along those lines, the average employee workweek decreased significantly in March, with its index falling from -1.6 to -12.9. Only 6.5 percent of those taking the survey said that their workweek was longer, with just over 72 percent saying that it had not changed.

On the other hand, it was not all lackluster news. The pace of hiring picked up slightly, with the index for employment up from 0.9 to 2.7. In addition, shipments appeared to have accelerated in March. In each case, though, these data indicate sluggish growth in hiring and shipments.

In a series of special questions, manufacturers were asked about their capital spending plans for 2013. Overall, 39.4 percent plan to increase their capital spending in 2013, with 31.8 percent anticipating decreases. More respondents plan to increase than decrease their investments in non-computer equipment this year, with net declines expected for other areas of capital spending (e.g., software, computer hardware, structures, and energy-saving improvements). Of those planning to reduce their capital investments, the main factors were sales, already-low capacity levels, and the lack of a need to do so.

Meanwhile, the other forward-looking measures show cautious optimism in the months ahead, much as they have in past surveys. Manufacturers largely expect significantly higher levels of new orders and shipments in the next six months. Hiring and capital spending are also expected to grow, but each data point reflects some deceleration from February’s readings to modest-at-best levels of expansion. In addition, pricing pressures are expected to pick up.

Chad Moutray is chief economist, National Association of Manufacturers.

The Federal Reserve Bank of Philadelphia’s Business Outlook survey found that manufacturing activity in its district weakened in January. The composite index of general conditions declined from 4.6 in December to -5.8 in January. This reflects seasonal adjustments revisions in the historical data series, something that is commonly performed at the beginning of the year.

Illustrating the slower growth and challenges faced in the manufacturing sector over the past year, the index was negative (or contracting) in 6 of the past 12 months. At least part of the increase in December could be explained by recovery from Hurricane Sandy.

Many of the sub-components were also in contraction territory, including new orders, inventories, prices received, employment, and the average workweek. Almost one-third of respondents, for instance, said that their sales levels had decreased in the past month, with another 42 percent indicating no change. The index for shipments went from decent growth (14.7) to being essentially flat (0.4).

On the topic of employment, the survey asked what was holding back hiring plans in a couple special questions. The most prevalent responses (cited by over 40 percent of them) were (1) the desire for the firm to keep operating costs low and (2) lower expectations for sales growth.

Other top factors restraining hiring were uncertainties related to health insurance costs, policy or regulatory uncertainties, and the inability of the firms to find qualified applicants. In terms of the impact of the nation’s fiscal (and political) challenges, 37 percent said that these developments had caused them to reduce hiring, with another 49 percent indicating no impact.

Despite these challenges and the more downbeat assessment of the current outlook, manufacturers were more positive about the next six months. Over 45 percent of them anticipate higher sales, and the forward-looking composite index rose from 23.7 to 29.2. Indeed, most of the indicators reflected a more-optimistic view for this year despite the many headwinds that we all face.

There is still a degree of cautiousness out there. Employment growth is expected to be up just modestly, with its index edging slightly lower from 11.2 to 10.7. In addition, capital spending plans also eased from 10.4 to 6.0.

Chad Moutray is chief economist, National Association of Manufacturers.

The Federal Reserve Bank of Philadelphia’s Business Outlook Survey observed some improvements in September, but with overall activity still contracting for the fifth month in a row. The composite index of general business conditions improved from -7.1 in August to -1.9 in September. It had been -16.6 and -12.9 in June and July, respectively, suggesting some progress in overall perceptions, even if they remain downbeat overall. 

Various indicators of manufacturing activity reflected contraction across-the-board in September. Almost 38 percent of respondents said that their shipments declined this month, with about 43 percent saying there was no change. New orders weakened from 1.0 in August to -5.5 in September. Overall, new orders, shipments, inventories, employment, and the average workweek were all in contraction territory, reflecting recent weaknesses in the global and domestic marketplace. Meanwhile, the prices of raw materials escalated modestly, up from 8.0 to 11.2.

In a series of special questions, those taking the survey were asked to compare production in the third quarter versus the second quarter. Almost 47 percent of them said that their production would be lower, with the average suggesting a decline of 0.7 percent. Likewise, 44.9 percent of respondents expected their production to fall even further in the fourth quarter.

In light of these responses, it not surprising that the forward-looking measures reflect a diminished degree of positivity. The index of business conditions six months from now dropped from 41.2 in August to 12.5 in September. While manufacturers are cautiously optimistic about the future (with more expecting positive changes than negative), all of the measures of activity eased significantly this month. The only exception was capital spending, which rose from 4.8 to 9.1.

Chad Moutray is chief economist, National Association of Manufacturers.

The two economic indicators released today were disappointing, showing continued weakness even as other data points show some improvements in manufacturing and the overall economy.

The Philadelphia Federal Reserve announced a surprisingly downbeat assessment in the May version of its Business Outlook Survey. The composite index fell from 8.5 in April to -5.8 in May. Several components reflect contracting activity, including new orders, inventories, prices received, employment and hours worked. Shipments data were the lone holdout, with a slight uptick in the growth rate.

This increased level of pessimism carried through to the forward-looking indicators as well. Manufacturers in the Philly region expect the growth rate to ease somewhat. The expectations composite index of general business activity plummeted to 15 in May from 33.8 in April. While new orders and shipments expectations remain strong, it is with a little less gusto. Still, only 15 percent of respondents expect new orders to decline in the next six months. (continue reading…)

The Federal Reserve Bank of Philadelphia’s Business Outlook Survey found that manufacturers were experiencing mostly modest growth in its January report. The index of general business conditions were marginally higher, up from 6.8 in December to 7.3 in January. Much of the data for 2011 were revised after considering new seasonal adjustment factors. December was originally reported as 10.3, so it was revised downward.

While overall business conditions were modestly higher, many of the other components in the survey reflected some easing from the previous month. New orders, for instance, fell from 10.7 to 6.9. This suggests that, while new orders continue to advance, they are growing at a slower pace than before. Similar readings were observed for shipments.

Unfilled orders, delivery times and inventories experienced some contractions, however. Meanwhile, the number of employees remained virtually unchanged but expanding, with slightly more hours of work observed.

Looking ahead, respondents were quite optimistic on all of the key variables. The index for expected new orders rose from 44.1 to 49.7, suggesting strong growth predictions. Measures for shipments, employment and capital expenditures were also expected to grow rapidly, and prices for raw materials are expected to accelerate and remain elevated.

In a series of special questions, respondents were asked about factors influencing employment. The top reasons cited for adding workers included higher sales, easing an overworked staff, hiring workers with new skills and decreased economic/financial uncertainty. On the other hand, the top factors restraining hiring were a desire to reduce costs, weaker sales, uncertainty about regulations or other government policies, an inability to find qualified workers and rising health care costs.

Chad Moutray is chief economist, National Association of Manufacturers.

The Philadelphia Federal Reserve Bank reported a sharp drop in manufacturing activity in August, with its index of general business conditions dropping from +3.2 to -30.7. Respondents noted contractions across the board in new orders, shipments, unfilled orders, delivery times, inventories, number of employees, and the average workweek. This report is dismal, with a particular worry being that new orders fell from +0.1 in July to -26.8 in August, suggesting weaker future growth.

Indeed, the six-month expectations of manufacturers in the Philadelphia region shifted from 23.7 to 1.4 in the past month. Optimism has diminished as the year has progressed given the index was 49.8 in January.

Essentially, manufacturers are marginally positive in their expectations. There is still some optimism for increases in new orders, shipments, employment, and capital expenditures, but the level of enthusiasm has fallen. These same respondents are also expecting the average workweek over the next six months to fall.

Pricing pressures continue to ease, but remain a problem. The index for price paid has fallen from 25.1 in July to 12.8 in August, indicating that the price of raw materials is still growing but at a slower rate. The six-month expectations reflect a belief that that raw materials will continue to grow strongly. At the same time, the prices received index has turned negative, meaning that businesses have begun to reduce prices, with the index falling from +1.1 to -9.0. There is an expectation for some price increases moving forward, but perhaps less than the rise of overall costs.

In summary, this is a bad report, reflecting continuing weaknesses in the manufacturing sector in the Philadelphia region.  Business confidence in the economy has dipped significantly – a concern moving forward and one that will hopefully be reversed in the next month’s survey. 

Chad Moutray is chief economist, National Association of Manufacturers.

Earlier today, the Philadelphia Federal Reserve Bank released new data from its Business Outlook Survey for July. On the positive side, the index of general business activity rose from -7.7 in June to 3.2 in July. This suggests that manufacturers in the Philadelphia region are no longer contracting, and yet, it also implies relatively slow growth.

In many ways, these numbers mirror what we have seen in other regions, with modest rebounds seen in the Kansas City, New York, and Richmond Federal Reserve Bank manufacturing surveys. (Although, the Empire State manufacturing survey remained negative)

Behind these numbers in the Philadelphia survey, new orders stopped shrinking, but also did not grow. The diffusion index for new orders rose from -7.6 to 0.1. Improvements were seen in delivery times, inventories, and employment. In terms of employment, 22 percent of respondents said that they increased their payrolls, versus the 13 percent which shrunk them. However, the average workweek declined, with the index falling from 1.9 in June to -5.4 in July. Unfilled orders remained unchanged at -16.3, and the gap between new orders and inventories was negative for the first time this year.

Pricing pressures, which have plagued manufacturers in recent months, have continued to moderate, with the index for prices paid falling from 26.8 to 25.1.  The index had been 67.2 in February, but has steadily fallen since then. Still, this still suggests rising costs, with nearly one-third of respondents noting higher prices during the month. In addition, manufacturers have not been able to pass those costs along to their customers, with the prices received index falling from 4.4 to 1.1. (continue reading…)