Philly FED Survey - 10:00AM

Full report here in PDF form July 2009 Business Outlook Survey The region's manufacturing sector is still experiencing weakness, according to firms polled for this month's Business Outlook Survey. Indexes for general activity, new orders, and shipments all registered negative readings this month, although the indexes' levels remained above their average readings for the year. Firms also report continued declines in employment and work hours this month. Most of the survey's broad indicators of future activity declined slightly this month, but they continue to suggest that the region's manufacturing executives expect a recovery in business over the next six months. Current Indicators Still Suggest Weakness The survey's broadest measure of manufacturing conditions, the diffusion index of current activity, decreased from -2.2 in June to -7.5 this month. The index has been negative for 19 of the past 20 months, a span that corresponds to the current recession (see Chart). Firms reporting decreases in activity (31 percent) slightly outnumbered those reporting increases (23 percent). Other broad indicators suggest weakness, although recent declines in new orders may be stabilizing. The current new orders index edged three points higher, to -2.2, its highest reading in 10 months. However, the current shipments index declined 12 points. Indexes for delivery times and unfilled orders, which have remained negative for 15 consecutive months, suggest continued weakness. Labor market conditions remain weak, and firms continue to report employment losses and declines in work hours. The current employment index declined to -25.3, from an already weak reading of -21.8. Thirty percent of firms reported declines in employment this month; only 5 percent reported increases. Although the workweek index improved 11 points, 24 percent of the firms reported shorter hours and 9 percent reported longer hours. Price Index Suggests Near Steady Input Prices Firms reported less widespread declines in input prices again this month. The prices paid index, although still negative at -3.5, increased nearly 10 points; it has now risen 28 points over the last three months. Fifteen percent of firms reported cost decreases, and 11 percent reported increases. However, declines dominate prices for the manufacturers' own final goods: Over 25 percent reported price declines, while only 4 percent reported increases. The prices received index declined five points, to -21.5. Six-Month Indicators Show Continued Improvement Broad indicators of future activity fell somewhat from their six-year highs last month, but they continue to suggest that firms are expecting improved conditions later this year. The future general activity index remained positive for the seventh consecutive month, but decreased from 60.1 in June to 51.9 this month. Last month's reading was its highest since September 2003 (see Chart). Indexes for future new orders and shipments also retreated 12 points this month. For the third consecutive month the percentage of firms expecting employment to increase over the next six months exceeded the percentage expecting declines (22 percent vs. 9 percent), and the future employment index was virtually unchanged. Firms' forecast for future capital spending remains subdued: The share of firms expecting higher capital spending over the next six months (20 percent) is nearly the same as the percentage expecting decreases (17 percent). In special questions this month firms were asked about seasonal plant shutdowns or slowdowns during the summer (see Special Questions). Nearly 28 percent of firms indicated that it was normal to schedule such slowdowns, but nearly 49 percent said they would schedule them this year. Moreover, 62 percent of the firms scheduling shutdowns/slowdowns indicated that production decreases for July would be greater than usual. Nearly 49 percent indicated production declines for August would be greater than usual. Summary According to respondents to the July Business Outlook Survey, declines in the region's manufacturing sector continued this month, although declines were not as large as those registered over most of the first half of the year. Indicative of continued weakness, however, firms are still reporting declines in employment and work hours. Although input prices may be stabilizing, over one-quarter of the firms reported declines in prices for their own manufactured goods. Future indicators suggest that firms expect improvement in conditions over the next six months, and for the third consecutive month, the number of firms expecting increases in employment over the next six months is larger than the number expecting declines.