Philly Fed Firms Report Slight Increase in Business Activity

PHILADELPHIA--(BUSINESS WIRE)--Manufacturers responding to the March Business Outlook Survey reported slight increases in business activity this month. Indicators for general activity and new orders increased notably, following negative readings over the previous two months. Indicators for shipments and employment remained positive and improved slightly this month. Changes in the survey's broad indicators of future activity were mixed but continued to reflect general optimism about growth over the next six months.

Indicators Suggest Increased Activity

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased from a reading of -12.5 in February to 2.0 this month (see Chart). The demand for manufactured goods also showed improvement this month: The new orders index increased from a reading of -7.8 in February to 0.5, its first positive reading in three months. The shipments index showed continued improvement: The index remained positive and edged higher to 3.5. The percentage of firms reporting increased shipments (25 percent) was still only slightly greater than the percentage reporting declines (22 percent).

Labor market conditions showed continued signs of stability, but little overall growth. The employment index increased from 0.9 in February to 2.7 this month, its second consecutive positive reading. The percentage of firms reporting employment increases (17 percent) narrowly exceeded the percentage reporting decreases (14 percent). Firms also reported a decline of average work hours this month. The workweek index declined 11 points.

Indexes Indicate Little Price Pressure

The survey’s price indexes suggest little price pressures again this month. For the third consecutive month, the prices received index was slightly negative. The percentage of firms reporting lower prices for their own manufactured goods (9 percent) exceeded by a slim margin the percentage reporting higher prices (8 percent). With regard to purchased inputs, 17 percent of firms reported paying higher prices for inputs, compared with 13 percent last month. The prices paid index edged slightly lower and is now at its lowest reading in nine months.

Six-Month Indicators Improve

The survey’s future indicators suggest that firms expect growth in business over the next six months. The future general activity index increased slightly from a reading of 32.1 to 32.5, its fourth consecutive monthly increase (see Chart). The percentage of firms expecting increases in activity over the next six months (46 percent) exceeded the percentage expecting decreases (13 percent). The indexes for future new orders and shipments showed a mixed pattern this month. The future new orders index decreased 4 points, while the future shipments index increased 1 point. The future employment index fell notably, from 14.9 to 8.1. Twenty-four percent of firms expect to increase employment over the next six months; 16 percent expect to decrease it.

In special questions this month, firms were asked about their expectations for capital spending for 2013 compared with 2012 (see Special Questions). Over 39 percent of the firms indicated that total capital spending would increase this year compared with 2012; 32 percent indicated that spending would decrease. With the exception of noncomputer equipment, most categories of planned capital spending were being scaled back this year. Among firms that did not plan to increase capital spending, the most cited reasons were low sales growth, low capacity utilization, and limited need to replace capital and technology equipment.

Summary

The March Business Outlook Survey indicated an improvement in the region’s manufacturing sector this month. Most notably, the indicators for general activity and new orders improved markedly, and the survey broadly recorded positive readings this month. Responses suggest that firms expect further increases in business over the next six months. Although firms are generally optimistic, restrained capital spending plans are in evidence.

Special Questions (March 2013)
1. Do you expect the following capital spending categories in 2013 to increase, decrease, or stay the same as last year?
	Increase	Decrease	No	Diffusion Index
	%	%	Change	(Increase - Decrease)
			%	%
Total capital spending	39.4	31.8	28.8	7.6
Noncomputer equipment	39.4	27.3	33.3	12.1
Software	22.7	30.3	47.0	-7.6
Computer and related hardware	16.7	24.3	59.1	-7.6
Energy saving investments	9.1	27.3	62.1	-18.2
Structures	13.6	31.8	53.0	-18.2

2. If you do not plan to increase total capital spending, what are the major factors behind your plan not to increase capital spending? *
	%
Expected growth of sales is low	54.0
Capacity utilization is currently low	46.0
Limited need to replace other capital good	43.0
Limited need to replace information technology equipment	41.0
Firm’s cash flow or balance-sheet position has deteriorated	16.0
Outsourcing	11.0
Cost or availability of external finance has deteriorated	5.0
* Percentages may add to greater than 100 because firms were asked to indicate more than one factor if applicable.

BUSINESS OUTLOOK SURVEY March 2013	March vs. February					Six Months from Now vs. March
	Previous Diffusion Index	Increase	No Change	Decrease	Diffusion Index	Previous Diffusion Index	Increase	No Change	Decrease	Diffusion Index
What is your evaluation of the level of general business activity?	-12.5	25.4	49.8	23.4	2.0	32.1	45.9	36.1	13.4	32.5
Company Business Indicators
New Orders	-7.8	23.6	51.5	23.2	0.5	38.0	48.6	34.1	14.1	34.5
Shipments	2.4	24.9	53.6	21.5	3.5	30.3	49.0	32.3	17.8	31.2
Unfilled Orders	-11.2	13.8	63.4	20.2	-6.4	4.3	19.0	61.3	12.4	6.6
Delivery Times	0.2	4.4	81.4	11.9	-7.5	-0.4	14.8	62.4	12.6	2.2
Inventories	-10.0	18.6	61.6	18.6	0.0	-2.6	19.8	46.1	25.5	-5.6
Prices Paid	8.9	17.1	73.5	8.7	8.5	26.4	34.7	55.9	3.8	30.9
Prices Received	-0.5	7.9	78.4	8.7	-0.8	25.4	24.2	61.4	7.7	16.6
Number of Employees	0.9	16.7	68.7	14.1	2.7	14.9	24.3	51.5	16.2	8.1
Average Employee Workweek	-1.6	6.5	72.3	19.5	-12.9	6.5	16.6	62.9	13.2	3.4
Capital Expenditures	--	--	--	--	--	15.7	19.6	55.4	12.8	6.8
NOTES:
(1) Items may not add up to 100 percent because of omission by respondents.
(2) All data are seasonally adjusted.
(3) Diffusion indexes represent the percentage indicating an increase minus the percentage indicating a decrease.
(4) Survey results reflect data received through March 18, 2013.