Philadelphia Fed Survey Reports Manufacturing Conditions Were Mixed in September

PHILADELPHIA

Manufacturing conditions in the region were mixed in September, according to firms responding to this month’s Manufacturing Business Outlook Survey. The indicator for general activity fell into negative territory, but indicators for new orders, shipments, and employment remained positive. Evidence suggests that the responses regarding general activity that were received earlier in the month may have been negatively affected by the volatility in the stock market and international news reports. Firms reported essentially unchanged prices for raw materials and other inputs in September and slight declines in prices for their own products. The survey’s indicators of future activity remained near their readings in August, indicating that firms expect a continuation of growth in the manufacturing sector over the next six months.

Indicators Were Mixed in September

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, decreased from 8.3 in August to -6.0 this month. This is the first negative reading in the index since February 2014. However, the demand for manufactured goods, as measured by the survey’s current new orders index, showed continued growth: The diffusion index increased from 5.8 to 9.4. Firms reported that shipments also continued to rise. The current shipments index remained positive but fell 2 points, to 14.8.

Firms’ responses suggest some improvement in employment conditions in September despite the reported lull in overall activity. The percentage of firms reporting an increase in employees in September (21 percent) was higher than the percentage reporting a decrease (11 percent). The current employment index increased 5 points, its highest reading in five months. Firms also reported, on balance, a modest increase in the workweek similar to August.

Prices Near Steady This Month

Firms reported near-steady prices of purchased inputs this month. The percentage of firms reporting price increases (16 percent) was nearly offset by the percent reporting price reductions (15 percent). Roughly two-thirds of the firms reported steady input prices this month. The prices paid diffusion index fell 6 points, to 0.5, its lowest reading in four months. With respect to prices received for manufactured goods, the percent of firms reporting lower prices (17 percent) exceeded the percentage reporting higher prices (12 percent) for the second consecutive month. The prices received index was virtually unchanged from August at -5.0.

Future Indexes Remained Generally Optimistic

The survey’s broadest indicator of future growth edged slightly higher this month. The future general activity index increased 1 point, to 44.0, its highest reading since January (see Chart). The future index for new orders, at 44.4, decreased 2 points, while the future shipments index, at 41.4, increased 4 points. Furthermore, 28 percent of the firms expect expansion in their workforce over the next six months, while 10 percent expect a reduction. The future employment index, at 17.9, declined 4 points from its August reading.

In this month’s special questions, firms were asked to estimate their total production growth for the third quarter ending this month along with expected growth for the fourth quarter. Firms anticipating increases in third-quarter production (46 percent) edged out those anticipating decreases (42 percent). However, the median production growth expected by firms for the third quarter was essentially unchanged from the second quarter. With regard to the fourth quarter, the percentage of firms forecasting acceleration in the rate of production growth (41 percent) was only slightly greater than the percentage forecasting deceleration in growth (39 percent).

Summary

The Manufacturing Business Outlook Survey suggests diminished general activity in September, although firms reported continued moderate growth in new orders and shipments. Employment also expanded moderately, suggesting firms are optimistic about a continuation of growth despite reported weakness in overall activity this month. The survey’s price indexes showed no signs of upward pressures this month. Indicators reflecting firms’ expectations for the next six months held steady or improved, suggesting expectations have not been notably diminished compared with previous months.

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Federal Reserve Bank of Philadelphia
Marilyn Wimp, 215-574-4197
Marilyn.Wimp@phil.frb.org