Nonmanufacturing Business Outlook

By Federal Reserve Bank Philadelphia

Firms responding to November’s Nonmanufacturing Business Outlook Survey reported that the pace of regional nonmanufacturing activity remains positive, with firms modestly increasing their assessment of current conditions for the region. Respondents reported a decrease in activity for their firms, however, and most of the individual indicators showed a decrease as well. The survey’s indicators for new orders, unfilled orders, and employment fell, while the indicators for sales and wages rose. The future activity indicators were relatively steady and show that the responding firms remain optimistic about nonmanufacturing activity increasing in the region and at their firms over the next six months.

Nonmanufacturing Activity Remains Positive

The diffusion index for current activity for the region rose 9 points, to 26.3, in November, as the proportion of firms reporting an increase in regional activity rose from 33 percent in October to 39 percent in November. The diffusion index for current activity at the firm level also stands at 26.3, falling 11 points from its October reading. At 47 percent, there was a small decline (3 points) in the proportion of respondents reporting an increase in activity at their firms this month, and the proportion reporting a decrease in activity rose 9 points, to 21 percent. Both indexes are near their historical averages of 24.4 for general activity in the region and 30.6 for general activity at the firm level.

Orders and Sales Are Mixed

In November, the new orders index fell 14 points, to 15.8, and the unfilled orders index fell almost 12 points, to 3.5. These changes were largely driven by a decline in the share of firms reporting an increase in both types of orders. The sales/revenues index rose 5 points, to 22.8, however. For this indicator, the share of firms reporting increases in sales or revenues rose from 38 percent in October to 44 percent in November.

Employment Conditions Weaken

Responses to the survey indicate weakening conditions for labor market demand in November. The full-time employment index fell almost 10 points, to 10.5; the part-time employment index fell 6 points, to 8.8; and the workweek index fell 11 points, to 8.8. The index for wages and benefits rose, however, as the share of firms reporting an increase in wages and benefits climbed from 28 percent in October to 35 percent.

Firms Report Steady Prices

The prices paid index rose 2 points, to 19.3. The prices received index fell 1 point, to 21.1. The share of firms reporting no change in prices paid stands at 61 percent, while the share of firms reporting no change in prices received stands at 53 percent.

Optimism About the Future Is High

Respondents to the survey remain optimistic about future activity over the next six months. At the individual firm level, the future activity diffusion index was 50.9 in November, down slightly from 52.5 in October. Only 9 percent of the respondents foresee lower activity at their firms over the next six months. At the regional level, the future activity diffusion index was 43.9 in November, a slight increase from 42.5 in October. These future indexes are near their historical averages of 50.6 for future activity at the firm level and 45.5 for future activity in the region.

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