Philly Fed: Manufacturing activity in the region increased modestly in July

July 2015 Manufacturing Business Outlook Survey

Manufacturing activity in the region increased modestly in July, according to firms responding to this month’s Manufacturing Business Outlook Survey for the Federal Reserve Bank of Philadelphia 

Indicators for general activity, new orders, and shipments remained positive, although they declined from their readings in June. Employment was essentially flat at the reporting firms this month. Firms reported higher prices for raw materials and other inputs in July, but prices of manufactured goods were reported as mostly steady. The survey’s index of future activity improved slightly, however, indicating that firms expect continuing growth in the manufacturing sector over the next six months.

Indicators Suggest Modest Growth

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, decreased from 15.2 in June to 5.7 this month. With the exception of June’s reading, the diffusion index has remained in the single-digit range since the beginning of this year (see Chart 1). The demand for manufactured goods, as measured by the survey’s current new orders index, also expanded modestly. The new orders index remained positive but fell 8 points. The current shipments index decreased 10 points from its six-month high reading in June. Both unfilled orders and delivery time indexes were negative this month, suggesting a decline in the backlog of orders and faster delivery times.

Firms’ responses suggest steady employment in July. The percentage of firms reporting an increase in employees in July was equal to the percentage reporting a decrease (12 percent). The current employment index fell for the third consecutive month, from a reading of 3.8 in June to -0.4. Firms reported a modest overall increase in the workweek: The workweek index was positive but little changed at 4.0.

Firms Continue to Report Input Prices Increases

Over 25 percent of the firms reported higher input prices this month, up from the 21 percent that reported higher prices last month. The prices paid index has increased for two consecutive months and is now at its highest reading since October (see Chart 2). The prices received index, which reflects firms’ own final goods prices, also increased from -5.4 to 4.8, the first positive reading in six months. The percent of firms reporting higher prices received (14 percent) exceeded the percentage reporting lower prices (10 percent), although 76 percent reported steady prices.

Future Indexes Show Continued Improvement

Most of the survey’s broad indicators of future growth edged slightly higher this month. The future general activity index increased 2 points to its highest reading since January (see Chart 1). The future index for new orders increased 1 point, while the future shipments index fell 6 points, after reaching a 10-month high in June. The future employment index was essentially unchanged compared with last month. More than 31 percent of the firms expect expansion in their workforce over the next six months, while 9 percent expect a reduction.

Significant Share Cite Seasonal Factors in Monthly Production Change

In this month’s special questions, firms were asked to assess the importance of seasonal factors in monthly production, seasonal changes in their production by month, and whether these seasonal factors have changed in importance over time. Firms reported seasonal increases in production in the spring and during the fall as well as a decrease in activity in mid-summer and during the winter months.

Summary

The Manufacturing Business Outlook Survey suggests modest expansion of the region’s manufacturing sector in July. The survey’s indicators for general activity, new orders, and shipments all remained positive but moderated from their readings in June. Firms reported near-steady employment this month. A notable share of respondents reported higher prices of inputs again this month. For their own manufactured products, firms reported that prices were steady this month. Indicators reflecting firms’ expectations for the next six months showed some improvement

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