Business Outlook Survey Releases (January 2007 - December 2007) December 2007 Overall conditions in the manufacturing sector deteriorated slightly in December, according to firms responding to this month's Business Outlook Survey. While the general activity index fell notably this month, firms continued to report growth in new orders and shipments. A significant share of the firms is still reporting a rise in prices for inputs and for their own manufactured goods. The region's manufacturing executives were less optimistic about future activity this month, and most future indicators have fallen considerably in the past two months. Indicators Suggest Slowing The survey's broadest measure of manufacturing conditions, the diffusion index of current activity, fell notably, from 8.2 in November to -5.7 in December (see Chart). Fifty percent of the firms reported no change in activity from November, but the percentage of firms reporting decreases (27 percent) was greater than the percentage reporting increases (21 percent) for the first time since last December. However, other broad indicators suggest continued growth this month. Demand for manufactured goods, as represented by the survey's new orders index, remained positive and increased seven points; the current shipments index increased 14 points. However, indexes for both unfilled orders and delivery times were negative. Weakness was also evident in replies about employment and hours worked. The percentage of firms reporting an increase in employment (18 percent) was offset by the percentage reporting a decrease (17 percent). The current employment index declined four points, to its lowest mark since February. The average workweek index remained positive, edging up five points. Firms Report Higher Prices A sizable share of the firms reported higher prices for inputs again this month. Thirty-five percent of the firms reported increases in input prices this month, which is down from 44 percent last month. The prices paid index fell back three points. The prices received index also edged slightly lower. Nevertheless, one-fifth of the firms reported higher prices for their own manufactured goods this month. Six-Month Indicators Continue to Fall Expectations for manufacturing growth over the next six months fell again in December. The future general activity index declined from 11.6 in November to 7.7 this month, following a 30-point drop last month (see Chart). The indexes of future new orders and shipments also declined for a second consecutive month: The two indexes fell 11 points and 13 points, respectively. Firms were somewhat more optimistic about future increases in employment: The future employment index rebounded by six points, following a decline of 13 points last month. Although 53 percent of the firms indicated that they expect no change in employment over the next six months, the percentage expecting an increase in employment (30 percent) is greater than the percentage expecting a decrease (11 percent). In this month's special question, firms were asked about their expectations for changes in various categories of input and labor costs for the upcoming year (see Special Question). Excluding labor costs (wages, health benefits, and nonhealth benefits), the largest increase is expected to be for energy (4.9 percent), followed by raw materials (3.8 percent) and intermediate goods (2.8 percent). With regard to labor costs, 68 percent of the firms polled said that wages would increase between 2.5 and 5 percent, with an average increase of 3.1 percent. The rise in health benefit costs is expected to be 7.2 percent, an increase three times larger than nonhealth benefits, which are expected to increase 2.4 percent. Summary On balance, conditions in the region's manufacturing sector appear to have deteriorated slightly this month. While the indicator for general activity fell notably in December, indicators for new orders and shipments suggest continued growth. Price pressures continue to be reported by manufacturing executives, and about one-fifth of the firms reported higher prices for their own manufactured goods this month. Firms' expectations for future activity have deteriorated sharply in the past two months, suggesting that a slower rate of growth is expected during the first half of 2008. Released: December 20, 2007 12:00 noon E.T. NOTICE: Effective January 2008, the Business Outlook Survey will be released at 10 a.m. ET, instead of at noon, on the third Thursday of the month. The survey's annual historical revisions, which incorporate new seasonal adjustment factors, will be released on Thursday, January 10, 2008, at 10 a.m. E.T. The information will be made available at: http://www.philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/boshistory.html Special Question (December 2007) What percentage change in costs do you expect for the following categories in 2008? Energy Other Raw Inter. Wages Health Non Materials Goods Benefits Health Benefits _______________________________________________________________________________ Increase > 12.5% 6.1 1.2 0.0 0.0 7.3 0.0 Increase of 10-12.5% 7.3 3.7 0.0 0.0 15.9 1.3 Increase of 7.5-10% 12.2 9.8 3.8 0.0 29.3 2.5 Increase of 5-7.5% 23.2 18.3 11.4 3.6 17.1 7.6 Increase of 2.5-5% 22.0 28.0 32.9 67.5 11.0 36.7 Increase of < 2.5% 12.2 20.7 26.6 19.3 8.5 20.3 Stay at current levels 6.1 12.2 24.1 8.4 7.3 24.1 Decline of < 2.5% 3.7 2.4 0.0 0.0 1.2 5.1 Decline of 2.5-5% 3.7 1.2 0.0 1.2 0.0 1.3 Decline of 5-10% 1.2 1.2 1.3 0.0 2.4 0.0 Decline of > 10% 2.4 1.2 0.0 0.0 0.0 1.3 Average 4.9 3.8 2.8 3.1 7.2 2.4 _______________________________________________________________________________ Summary of Returns December 2007 December vs. November | Six Months from now | vs. December | Prev. | Prev. Diff. Inc. No ch. Dec. Diff. | Diff. Inc. No ch. Dec. Diff. Index Index | Index Index | General Busines 8.2 21.4 49.6 27.1 -5.7 | 11.6 31.2 41.3 23.5 7.7 Conditions | | New Orders 3.5 34.0 42.6 23.3 10.7 | 20.5 30.7 42.6 21.5 9.2 | Shipments 4.7 37.4 43.6 19.0 18.4 | 18.5 31.2 38.7 25.2 6.0 | Unfilled Orders -9.2 21.1 53.2 25.6 -4.5 | -1.7 13.6 55.8 24.7 -11.1 | Delivery Times -11.7 13.9 70.7 15.2 -1.4 | -16.7 5.2 68.5 19.2 -13.9 | Inventories 2.5 17.5 55.6 24.2 -6.7 | -10.4 22.1 54.8 21.1 1.0 | Prices Paid 37.7 35.0 63.6 0.0 35.0 | 48.6 48.3 38.5 7.0 41.3 | Prices Received 18.6 21.3 74.2 4.6 16.7 | 27.1 36.3 46.9 10.3 26.0 | Number of Emp. 4.8 17.8 64.9 17.3 0.5 | 13.6 30.4 52.5 11.0 19.4 | Avg. Emp. Wrkwk 1.6 21.5 62.1 14.4 7.0 | -0.9 14.5 68.1 12.5 2.0 | Capital Ex. -- -- -- -- -- | 7.1 33.8 44.1 12.0 21.8 | Notes: (1) Items may not add to 100 percent because of omission by respondents. (2) All data are seasonally adjusted. (3) Diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. (4) Survey results reflect data received through December 17, 2007. November 2007 Activity in the region's manufacturing sector continued to expand in November at about the same modest pace as in October, according to firms responding to this month's Business Outlook Survey. Indicators for general activity and new orders remained positive and increased slightly from their readings last month. The employment index, while remaining positive, fell notably this month. Firms continued to report a rise in prices for inputs, and prices for the firms' own manufactured goods have increased in recent months. The region's manufacturing executives were substantially less optimistic about future activity than they were in October, and responses to special questions indicated that some firms are cutting back on fourth-quarter production plans. Indicators Suggest Modest Growth The survey's broadest measure of manufacturing conditions, the diffusion index of current activity, rose slightly, from 6.8 in October to 8.2 this month (see Chart). Forty-two percent of the firms reported no change in activity from October, but the percentage of firms reporting increases (33 percent) remained greater than the percentage reporting decreases (24 percent). Other broad indicators suggest slow growth this month. The survey's new orders index, which reflects the demand for manufactured goods, remained positive but increased by less than one point from its relatively low reading last month. The current shipments index, which fell below zero last month, increased from -4.1 to 4.7, suggesting that shipments rebounded this month. There were indications of weakness in growth, however; the indexes for unfilled orders and delivery times were both negative this month. Weakness in growth is also evident in replies about employment and hours worked. The percentage of firms reporting an increase in employment (21 percent) was higher than the percentage reporting a decrease (16 percent), but the current employment index declined eight points, to its lowest reading in four months. The average workweek index remained positive but edged four points lower. Firms Report Higher Prices A sizable share of firms reported higher prices for inputs again this month: 44 percent of the firms reported higher input prices, compared to 46 percent in October. The prices paid index declined three points but is well above its average reading for the year. The prices received index, which increased six points, has now increased in two consecutive months. Although 73 percent of the firms reported steady prices for their own manufactured goods, 23 percent reported higher prices, and 4 percent reported lower prices. Six-Month Forecasts Fall Sharply The outlook for manufacturing growth over the next six months appeared to reflect less confidence this month as all future indicators fell from their October readings. The future general activity index decreased from 41.5 in October to 11.6 this month, its lowest reading this year (see Chart). The indexes of future new orders and shipments followed suit: The two indexes declined 23 points and 20 points, respectively. Firms were also less optimistic about future increases in employment: The future employment index dropped 13 points, to its lowest reading since June. In special questions this month, firms were asked about expected growth in production during the fourth quarter and whether, among other things, the increase or decrease reflected a change in business conditions (see Special Questions). Sixty-six percent of the firms indicated that production would decrease in the fourth quarter; 27 percent said the decrease was due to a change in business conditions. Thirty-two percent of the firms indicated that production would increase; 12 percent indicated that the increase was the result of a change in business conditions. Summary Indicators of current activity suggest a continuation of modest growth in the region's manufacturing sector in November. Forty-four percent of firms surveyed continued to report cost pressures, and 23 percent reported higher prices for their manufactured goods. Overall, firms expect improvement in manufacturing business over the next six months, although most six-month indicators were down dramatically from last month. Over one-quarter of the firms surveyed indicated that fourth-quarter production cutbacks are planned and that they are attributable to recent changes in business conditions. Special Questions (November 2007) 1. What change, if any, do you anticipate in your firm's production during the fourth quarter of 2007 compared to the third quarter? All Reporting Firms | Firms Attributing Expected |Change to Altered Business | Conditions | (% of all reporting firms) | % subtotals | % subtotals ____________________|_____________________________ Decline of > 4% 15.9 | 8.5 Decline of 3-4% 7.3 | 3.7 Decline of 2-3% 8.5 | 2.4 Decline of 1-2% 8.5 | 3.7 Decline of < 1% 25.6 | 8.5 Decline Subtotal 65.8 | 26.8 Increase of < 1% 0.0 | 0.0 Increase of 1-2% 9.8 | 4.9 Increase of 2-3% 11.0 | 3.7 Increase of 3-4% 6.1 | 2.4 Increase of > 4% 4.9 | 1.2 Increase Subtotal 31.8 | 12.2 No change 2.4 2.4 | 0.0 0.0 Totals 100.0% 100.0% | 39.0% 39.0% Summary of Results November 2007 November vs. October | Six Months from now | vs. November | Prev. |Prev. Diff. Inc. No ch. Dec. Diff. |Diff. Inc. No ch. Dec. Diff. Index Index |Index Index | General Busines 6.8 32.5 42.0 24.3 8.2 | 41.5 32.4 44.1 20.8 11.6 Conditions | | New Orders 2.7 34.7 34.1 31.2 3.5 | 43.5 40.3 37.0 19.8 20.5 | Shipments -4.1 34.8 34.3 30.2 4.7 | 38.7 37.9 39.2 19.5 18.5 | Unfilled Orders -8.2 15.1 60.5 24.3 -9.2 | 3.6 18.0 56.4 19.7 -1.7 | Delivery Times 0.9 9.4 69.4 21.1 -11.7 | -4.8 4.3 67.5 21.0 -16.7 | Inventories -15.0 27.2 48.2 24.6 2.5 | -8.9 14.7 53.1 25.1 -10.4 | Prices Paid 40.3 43.6 50.5 5.9 37.7 | 51.5 53.5 35.5 4.9 48.6 | Prices Received 12.4 22.5 72.7 3.9 18.6 | 38.1 35.1 50.3 8.0 27.1 | Number of Emp. 12.6 20.7 63.4 15.9 4.8 | 26.9 30.6 45.0 17.0 13.6 | Avg. Emp. Wrkwk 5.1 17.6 64.3 16.0 1.6 | 6.3 16.9 57.7 17.8 -0.9 | Capital Ex. -- -- -- -- -- | 20.5 25.0 48.9 18.0 7.1 | Notes: (1) Items may not add to 100 percent because of omission by respondents. (2) All data are seasonally adjusted. (3) Diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. (4) Survey results reflect data received through November 13, 2007. October 2007 Activity in the region's manufacturing sector continued to expand in October but at a somewhat slower pace than in September. Indicators for general activity and new orders remained positive but fell from their readings last month. Overall employment was reported higher. Significantly more firms reported a rise in prices for inputs, and price increases for finished goods were more widespread this month. Also this month, the region's manufacturing executives were, on balance, more optimistic about future activity than they were in September. Some Indicators Suggest Slowing This Month The survey's broadest measure of manufacturing conditions, the diffusion index of current activity, decreased from 10.9 in September to 6.8 this month (see Chart). Fifty-two percent of the firms reported no change in activity from September, but the percentage of firms reporting increases (27 percent) remained greater than the percentage reporting decreases (21 percent). Other broad indicators suggested some slower growth this month. Demand for manufactured goods, as represented by the survey's new orders index, slipped this month; the index decreased 12 points but remained positive. The current shipments index fell 21 points, however, and moved below zero for the first time since September 2006. A slowing in manufacturing is not evident in replies about employment and hours worked this month. The percentage of firms reporting an increase in employment (26 percent) was higher than the percentage reporting a decrease (13 percent), and the current employment index increased five points from its September reading. The average workweek index remained positive but edged seven points lower. Price Pressures Are Greater This Month A larger percentage of firms reported higher prices for inputs this month: 46 percent of the firms reported higher input prices this month compared to 30 percent in September. The prices paid index jumped 17 points and has now increased for two consecutive months. The prices received index increased nine points. Although 66 percent of the firms reported steady prices for their own manufactured goods, 23 percent reported higher prices, and 11 percent reported lower prices. Six-Month Forecasts Remain Optimistic Expectations for manufacturing growth over the next six months showed some improvement this month. The future general activity index, at 41.5, is six points higher than in September and is now at its highest level since November 2004 (see Chart). The index for future new orders held steady this month, but the future shipments index decreased seven points. The future employment index edged two points higher. Forty-two percent of the firms expect to increase employment over the next six months; 15 percent expect decreases. In special questions this month, firms were asked if recent changes in financial conditions had influenced planned spending on new plant and equipment over the next six to 12 months relative to the past six to 12 months (see Special Questions). Although two-thirds of the firms indicated no revisions in plans, 12 percent indicated substantial downward revision in planned spending, 13 percent indicated a small downward revision, and only 1 percent expected substantial upward revision. With regard to their actual plans, nearly 32 percent of the firms said they plan to increase capital spending over the next six to 12 months - somewhat lower than the percentage at the beginning of this year (40 percent), when the same question was posed. Twenty-six percent said they plan to decrease spending, up slightly from 22 percent at the beginning of the year. Summary Indicators of current activity suggest continued growth of the region's manufacturing sector, although at a slightly slower rate than in September. Most current indicators suggest slower growth. Indexes for general activity, new orders, and employment all remained positive, although the shipments index fell significantly from September. A significantly larger percentage of firms reported higher costs this month, but half as many firms reported higher prices for manufactured goods. Despite weakening in some current indicators, manufacturing executives remained optimistic about growth over the next six months. NOTICE: Effective January 2008, the Business Outlook Survey will be released at 10 a.m. ET, instead of at noon, on the third Thursday of the month. Special Questions (October 2007) 1. Have recent changes in financial conditions prompted your firm to revise its planned spending on new plant and equipment over the next six to 12 months? Substantial downward revision 11.6% Small downward revision 12.8% No change 67.4% Small upward revision 7.0% Substantial upward revision 1.2% 2. After taking account of any recent revisions to spending plans, do you expect your firm's spending on new plant and equipment over the next six months to increase, decrease, or be about unchanged relative to your actual spending over the past six to 12 months? Oct Jan Jan 2007 2007 2006 Decrease 25.9% 21.7% 15.2% No change 42.4% 38.1% 45.6% Increase 31.7% 40.2% 39.2% October 2007 October vs. September Six Months from now vs. October Prev. Prev. Diff. Inc. No ch. Dec. Diff. Diff. Inc. No ch. Dec. Diff. Index Index Index Index General Busines 10.9 27.3 52.2 20.5 6.8 35.7 52.1 30.1 10.6 41.5 Conditions New Orders 15.1 27.1 48.0 24.5 2.7 43.5 55.6 32.3 12.1 43.5 Shipments 16.9 23.0 48.8 27.1 -4.1 45.4 54.1 28.7 15.5 38.7 Unfilled Orders -1.0 16.7 58.5 24.8 -8.2 14.3 17.9 64.3 14.3 3.6 Delivery Times -6.1 14.1 71.0 13.1 0.9 -5.2 11.6 67.2 16.4 -4.8 Inventories 4.0 10.7 61.6 25.7 -15.0 -7.3 18.9 48.5 27.8 -8.9 Prices Paid 23.1 45.7 48.0 5.4 40.3 48.8 53.9 37.7 2.4 51.5 Prices Received 3.3 22.9 66.4 10.5 12.4 31.2 45.6 42.7 7.5 38.1 Number of Emp. 7.5 26.0 59.5 13.4 12.6 25.1 42.3 37.6 15.4 26.9 Avg. Emp. Wrkwk 11.9 21.2 58.9 16.1 5.1 10.6 18.3 65.4 12.0 6.3 Capital Ex. -- -- -- -- -- 21.3 33.9 41.8 13.3 20.5 Notes: (1) Items may not add to 100 percent because of omission by respondents. (2) All data are seasonally adjusted. (3) Diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. (4) Survey results reflect data received through October 15, 2007. September 2007 Activity in the region's manufacturing sector picked up in September, according to firms polled for this month's Business Outlook Survey. Indexes for general activity, new orders, and shipments increased, reflecting continued underlying growth. Firms continued to report a rise in prices for inputs, but price increases for finished manufactured goods were not widespread. On balance, the forecast for growth over the next six months has not diminished appreciably, even though, according to responses to special questions this month, over one-quarter of the firms said they are scaling back employment and capital spending plans because of the recent deterioration in the construction industry and uncertainty in financial markets. Firms Report an Increase in Activity The survey's broadest measure of manufacturing conditions, the diffusion index of current activity, increased from zero in August to 10.9 this month (see Chart). Forty-nine percent of the firms reported no change in activity from August, but the percentage of firms reporting increases (30 percent) was greater than the percentage reporting decreases (19 percent). Other broad indicators suggest growth this month. Demand for manufactured goods, as represented by the survey's new orders index, improved this month; the index increased eight points. The current shipments increased five points. The improvement in manufacturing is less evident in replies about employment and hours worked. The percentage of firms reporting an increase in employment (24 percent) was somewhat higher than the percentage reporting a decrease (16 percent); still, the current employment index fell 14 points from its August reading. The average workweek index remained positive but edged slightly lower. In a special question this month firms were asked about the impact on business of the recent deterioration in the construction and financial sectors (see Special Questions). About one-third of the firms reported some decline in new orders and shipments, although only 11 percent said the declines were substantial. A smaller percentage (24 percent) reported a decline in employment. Price Pressures Remain Respondents continue to report higher prices for inputs this month. The prices paid index increased eight points, after edging lower in the previous three months. Thirty percent of the firms reported higher input prices; 7 percent reported lower input prices. The prices received index edged four points lower. Eighty-one percent of the manufacturers reported steady prices, 11 percent reported higher prices, and 7 percent reported lower prices. Six-Month Forecasts Remain Optimistic Expectations for manufacturing growth over the next six months remained relatively optimistic in September. The future general activity index, at 35.7, was nearly unchanged this month. The August reading was the highest since November 2004 (see Chart). The indexes for future new orders, which increased two points, and shipments, which increased eight points, continued to reflect optimism. The future employment index, however, fell 10 points, to 25.1. Thirty-seven percent of the firms expect to increase employment over the next six months, down from 45 percent in August. Manufacturing firms were also asked specifically about the impact on plans for employment and capital spending of the recent deterioration in the construction industry and uncertainties in the financial markets. About 27 percent of the firms indicated that they plan to scale back employment and capital spending, although only 9 percent said that these reductions would be substantial. Summary The survey's indicator of general activity increased this month, suggesting a modest improvement in overall manufacturing activity. Indexes for new orders, shipments, and employment improved this month, suggesting continued underlying growth. However, about one-third of the firms said that recent events in the construction and financial sectors have had negative effects on business. Price indexes suggest continued cost pressures, but the percentage of firms reporting higher prices for their own manufactured goods this month was only slightly higher than the percentage reporting decreases. On balance, manufacturing executives expect growth in business over the next six months. Released: September 20, 2007 12:00 noon E.T. _______________________________________________________________________________ NOTICE: Effective January 2008, the Business Outlook Survey will be released at 10 a.m. ET, instead of at noon, on the third Thursday of the month. _______________________________________________________________________________ Special Questions (September 2007) 1. Have the most recent changes in the construction and financial sectors had any adverse effects on new orders, shipments, or employment at your plant? New Orders Shipments Employment % % % No impact 65.0 68.0 75.6 Slight decling 12.5 10.3 9.0 Moderate decline 11.3 10.3 7.7 Substantial decline 11.3 11.5 7.7 2. Have recent changes affected your plans for employment or capital spending over the rest of this year? Employment Plans Capital Spending Plans % % No impact 72.7 72.2 Slight decline 10.4 6.3 Modest decline 7.8 12.7 Substantial decline 9.1 8.9 Percentages do not sum to 100 percent because of rounding. September 2007 September vs. August Six Months from now vs. September Prev. Prev. Diff. Inc. No ch. Dec. Diff. Diff. Inc. No ch. Dec. Diff. Index Index Index Index General Busines 0.0 30.2 48.7 19.3 10.9 36.2 42.8 47.7 7.1 35.7 Conditions New Orders 7.1 33.6 46.3 18.5 15.1 41.5 48.9 44.0 5.4 43.5 Shipments 12.4 35.9 45.1 19.0 16.9 37.2 46.0 45.2 0.6 45.4 Unfilled Orders -2.1 19.0 61.0 20.0 -1.0 6.3 22.1 66.0 7.8 14.3 Delivery Times -2.1 12.9 68.1 19.0 -6.1 -2.0 12.3 67.9 17.5 -5.2 Inventories -4.8 26.4 51.1 22.5 4.0 -11.8 17.1 56.1 24.4 -7.3 Prices Paid 15.4 29.7 63.5 6.6 23.1 41.1 52.0 43.5 3.2 48.8 Prices Received 6.8 10.6 80.9 7.3 3.3 20.6 36.9 57.3 5.8 31.2 Number of Emp. 21.2 23.5 57.7 16.0 7.5 35.0 37.4 48.6 12.3 25.1 Avg. Emp. Wrkwk 13.1 24.1 62.7 12.2 11.9 10.9 23.2 64.3 12.5 10.6 Capital Ex. -- -- -- -- -- 26.3 30.2 49.4 8.9 21.3 Notes: (1) Items may not add to 100 percent because of omission by respondents. (2) All data are seasonally adjusted. (3) Diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. (4) Survey results reflect data received through September 17, 2007. August 2007 Activity in the region's manufacturing sector was generally steady in August, according to firms polled for this month's Business Outlook Survey. Although the index for general activity suggests no overall growth, indicators for new orders, shipments, and employment suggest some growth. Firms continued to report a rise in prices for inputs, although these cost increases were less widespread than in previous months. The region's manufacturing executives were somewhat more optimistic about future activity than they were in July. Firms Indicate Overall Conditions Are Mostly Unchanged The survey's broadest measure of manufacturing conditions, the diffusion index of current activity, decreased from 9.2 in July to zero this month (see Chart). Fifty-seven percent of the firms reported no change in activity from July, but the percentage of firms reporting increases equaled the number reporting decreases (21 percent). Other broad indicators continued to suggest growth. Demand for manufactured goods, as represented by the survey's new orders index, was positive but slightly weaker this month; the index fell four points. The current shipments index also weakened, declining eight points. Indexes for delivery times and unfilled orders both declined this month, and now both are slightly below zero. Despite the moderation suggested by other broad indicators, there was marked improvement in manufacturing employment indexes in August. While 65 percent of the firms reported steady employment levels in August, the percentage of firms reporting increases (27 percent) was significantly higher than the percentage reporting decreases (6 percent). The current employment index jumped 17 points, to its highest reading since September 2004, but most of the increase this month is attributable to the decline in the share of firms reporting employment decreases (from 18 percent to 6 percent). The average workweek index also increased from zero in July to 13.1 this month. Price Indexes Moderate This Month Respondents continue to report higher costs for inputs this month. The prices paid index, however, fell 13 points and has now edged lower in three consecutive months. Twenty-nine percent of the firms reported higher input prices; 14 percent reported lower input prices. Nineteen percent of the firms reported increases in the prices of their own manufactured goods this month; 12 percent reported lower prices. The prices received index decreased two points. Six-Month Forecasts Remain Optimistic Expectations for manufacturing growth over the next six months showed some improvement this month. The future general activity index increased from 30.4 in July to 36.2, its highest reading since November 2004 (see Chart). The indexes for future new orders and shipments continued to reflect optimism, although they decreased by one and six points, respectively. The future employment index rose five points, following an increase of 20 points in July. Forty-five percent of the firms expect to increase employment over the next six months; 10 percent expect decreased employment. In special questions this month, manufacturing firms were asked about growth in export business over the past year (see Special Questions). Exports as a percent of sales have increased at 39 percent of the manufacturing firms; only 7 percent indicated that exports as a share of sales have decreased. Among the firms that indicated that exports were growing, export growth represented about 19 percent of their sales growth. The respondents that indicated an increased export share were predominantly firms producing for the intermediate product, capital goods, and business product markets. Summary The survey's indicator for general activity suggests no overall growth in the region's manufacturing sector this month. Indexes for new orders, shipments, and employment all remained positive, however, and suggest some continuing growth. Price indexes suggest reduced cost pressures in recent months, and in August, the percentage of firms reporting higher prices for their own manufactured goods was only slightly above the percentage reporting decreases. On balance, manufacturing executives expect growth in business over the next six months, and they continue to be more optimistic about future employment growth. Special Questions (August 2007) 1. Over the past year, have exports as a share of your total sales: % % Increase substantially 10.0 Increased modestly 28.6 Increased subtotal 38.6 Stayed the same 54.3 Decreased modestly 5.7 Decreased substantially 1.4 Decreased subtotal 7.1 Total 100.0 2. If your exports are currently growing how would you complete the following: About ___% of my sales growth is attributable to exports. Average response: 18.9 % Summary of Returns August 2007 August vs. July Six Months from now vs. August Prev. Prev. Diff. Inc. No ch. Dec. Diff. Diff. Inc. No ch. Dec. Diff. Index Index Index Index | General Busines 9.2 20.5 57.2 20.5 0.0 | 30.4 48.9 33.5 12.8 36.2 Conditions | | New Orders 11.3 28.8 47.5 21.7 7.1 | 42.9 54.6 27.8 13.1 41.5 | Shipments 20.3 33.4 45.0 21.0 12.4 | 43.6 50.7 31.4 13.5 37.2 | Unfilled Orders 3.2 15.7 59.2 17.8 -2.1 | 15.5 21.8 58.2 15.4 6.3 | Delivery Times -1.1 11.7 71.4 13.8 -2.1 | 5.2 15.3 62.1 17.3 -2.0 | Inventories 0.8 18.4 57.3 23.2 -4.8 | -3.2 14.2 56.0 26.0 -11.8 | Prices Paid 28.1 29.4 54.7 14.0 15.4 | 42.5 47.3 41.7 6.2 41.1 | Prices Received 8.8 18.8 67.1 11.9 6.8 | 25.0 26.4 60.8 5.8 20.6 | Number of Emp. 4.1 26.9 65.4 5.7 21.2 | 30.1 44.7 37.6 9.7 35.0 | Avg. Emp. Wrkwk 0.0 20.5 71.9 7.4 13.1 | 21.4 20.2 61.8 9.3 10.9 | Capital Ex. -- -- -- -- -- | 18.8 35.5 50.3 9.2 26.3 Notes: (1) Items may not add to 100 percent because of omission by respondents. (2) All data are seasonally adjusted. (3) Diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. (4) Survey results reflect data received through August 13, 2007. July 2007 Activity in the region's manufacturing sector continued to expand in July but at a somewhat slower pace than in June. Indicators for general activity, new orders, and employment remained positive but fell somewhat from their higher readings in June. Manufacturing executives were notably more optimistic about future activity this month; all of the survey's future indicators increased significantly in July. Growth Continues,But Several Indicators Decline The survey's broadest measure of manufacturing conditions, the diffusion index of current activity, decreased nine points from its relatively high reading in June (see Chart). Fifty-five percent of the firms reported no change in activity from June, but the percentage of firms reporting increases (27 percent) exceeded the percentage reporting decreases (18 percent). Demand for manufactured goods, as represented by the survey's new orders index, showed a similar dip, falling seven points from its relatively high reading last month. The current shipments index increased 15 points, however, to its highest reading since January. Indexes for delivery times and unfilled orders continued to inch higher, with the unfilled orders index turning positive for the first time in 15 months. The inventory index also increased nine points and registered its first positive reading since January. There was little appreciable change in manufacturing employment in July. While 59 percent of the firms reported steady employment levels in July, the percentage of firms reporting increases (22 percent) was only slightly higher than that of firms reporting decreases (18 percent). The current employment index, at 4.1, is almost two points lower than in June. The average workweek index suggests steady hours worked this month. Higher Prices Still Evident Respondents reported higher costs for inputs again this month. The prices paid index, however, fell nearly two points and has now edged lower in two consecutive months. Nevertheless, 37 percent of the firms reported higher input prices; 9 percent reported lower input prices. Twenty-one percent of the firms reported increases in the prices of their own manufactured goods this month. The prices received index was up for the second consecutive month, increasing four points, to 8.8. Six-Month Forecasts Rebound Expectations for manufacturing growth over the next six months showed notable improvement this month. The future general activity index increased from 16.7 in June to 30.4 in July, returning close to its reading in May (see Chart). The indexes for future new orders and shipments also increased, 24 points and 14 points, respectively. The future employment index rose 20 points, to its highest reading in more than three years. Thirty-six percent of the firms expect to increase employment over the next six months; 6 percent expect decreased employment. In special questions this month, manufacturing firms were asked about their own industry's expected growth for the remainder of this year (see Special Questions). About twice as many firms expect increases in industry output in the second half as expect decreases: 49 percent indicated that their industry's output would increase in the second half of 2007; 27 percent said it would decrease. Thirty-one percent indicated that the anticipated industry growth rate was an acceleration from the first half of the year; 21 percent said the anticipated growth rate was a deceleration. Summary Indicators of current activity suggest continued growth of the region's manufacturing sector. Although indexes for general activity, new orders, and employment all remained positive, they were somewhat lower than in June. The shipments index improved significantly, however. Cost pressures continue to be reported by a significant share of the firms, and slightly more firms reported higher prices for their own manufactured goods this month. On balance, firms expect growth in their industries and their own manufacturing business over the next six months, and all of the survey's six-month indicators showed increased optimism among manufacturing executives this month. Special Questions (July 2007) 1. What annualized rate of growth do you anticipate for your industry's output in the second half of 2007? % % Increase 48.7 Increase of 5% or more 13.4 Increase of 3-4% 14.6 Increase of 1-2% 20.7 No change 24.4 Decline 26.9 Decline of 1-2% 11.0 Decline of 3-4% 4.9 Decline of 5% or more 11.0 Total 100.0 2. Does this annualized growth represent an acceleration or deceleration of growth from the first half of 2007? % Acceleration 30.9 No change 48.1 Deceleration 21.0 July 2007 July vs. June Six Months from now vs. July Prev. Prev. Diff. Inc. No ch. Dec. Diff. Diff. Inc. No ch. Dec. Diff. Index Index Index Index General Business 18.0 27.2 54.8 18.0 9.2 16.7 41.9 44.4 11.5 30.4 Conditions New Orders 18.3 31.0 49.2 19.8 11.3 19.1 50.0 36.6 7.1 42.9 Shipments 5.0 37.1 45.6 16.8 20.3 29.3 50.9 37.9 7.3 43.6 Unfilled Orders -0.7 21.2 60.7 18.0 3.2 5.1 23.8 61.6 8.4 15.5 Delivery Times -3.5 15.7 67.5 16.8 -1.1 -2.4 15.0 70.4 9.9 5.2 Inventories -8.2 25.6 49.6 24.8 0.8 -5.7 23.3 48.5 26.5 -3.2 Prices Paid 29.7 36.9 54.3 8.8 28.1 38.2 51.4 32.6 8.9 42.5 Prices Received 5.1 21.2 64.4 12.5 8.8 24.1 36.1 46.9 11.1 25.0 Number of Emp. 5.6 22.0 59.4 17.9 4.1 10.4 36.4 52.2 6.3 30.1 Avg. Emp. Wrkwk -0.3 18.9 62.2 18.9 0.0 9.9 24.1 64.9 2.7 21.4 Capital Ex. -- -- -- -- -- 18.0 25.8 59.6 7.1 18.8 Notes: (1) Items may not add to 100 percent because of omission by respondents. (2) All data are seasonally adjusted. (3) Diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. (4) Survey results reflect data received through July 16, 2007. June 2007 Activity in the region's manufacturing sector picked up in June, according to firms polled for this month's Business Outlook Survey. Indicators for general activity and new orders improved notably this month. Firms continued to report higher input costs, but price increases for finished manufactured goods are not widespread. The outlook for growth diminished somewhat in June, although manufacturing executives still expect conditions to improve over the next six months. Growth Picks Up The survey's broadest measure of manufacturing conditions, the diffusion index of current business activity, increased from 4.2 in May to 18.0 this month, its highest reading since April 2005 (see Chart). The percentage of firms reporting increases (40 percent) exceeded the percentage reporting decreases (22 percent). Demand for manufactured goods, as represented by the survey's new orders index, showed notable improvement this month. The new orders index rose 10 points, to its highest reading since March 2006. The current shipments index fell four points but remained positive. Indexes for delivery times and unfilled orders, although remaining negative, improved from their May readings and are at their highest readings this year. Evidence of growth in manufacturing is also seen in replies concerning employment. While 62 percent of the firms reported steady employment levels in June, the percentage of firms reporting increases (21 percent) was higher than the percentage reporting decreases (16 percent). The current employment index fell back seven points but remained positive. The average workweek index suggests that hours worked this month remained virtually steady: The percentage of firms reporting longer hours was nearly the same as that reporting shorter hours. Cost Pressures Remain Respondents reported higher costs for inputs again. The percentage of firms reporting higher input prices in June (41 percent) exceeded that of firms reporting lower input prices (11 percent). The prices paid index, however, fell three points, following four consecutive months of increases. Although input price increases remained widespread, far fewer firms reported higher prices for their own manufactured goods: 19 percent reported higher output prices this month; 13 percent reported lower prices. The prices received index increased three points, although its reading last month was the lowest since August 2003. Six-Month Indicators Generally Positive But Lower The outlook for manufacturing growth over the next six months remains generally optimistic, although most future indicators fell from their May readings. The future general activity index decreased from 30.8 in May to 16.7 this month, its lowest reading this year (see Chart). The indexes for future new orders and shipments moved in opposite directions: The future shipments index rose three points, but the future new orders index fell 11 points. Firms were somewhat less optimistic about future increases in employment: 27 percent expect to increase employment; 16 percent expect to decrease it. The future employment index declined seven points, falling back from a four-month high in May. In special questions this month, firms were asked about the probability that they would relocate some or all of their operations out of the tri-state region over the next five years (see Special Questions). The average probability of relocating was 26.9 percent, compared to an average of 15.9 percent when the question was asked last year. The average probability of relocating all operations was 5.4 percent, up from 1.9 percent last year. Firms were also asked to rank economic factors that were influencing them to stay in or leave the region. The most relevant factors influencing the decision to stay were the heavy investment in fixed capital, the availability of skilled workers, and the proximity to customers. The most important factors influencing the decision to leave were the cost of labor; taxes, subsidies, or regulations; and the availability of skilled workers. Summary Indicators for current activity point to an expansion of the region's manufacturing sector, after modest growth in previous months. A large share of firms continued to report cost pressures, but only slightly more firms reported higher prices for their own manufactured goods than reported price decreases. Overall, firms expect improvement in manufacturing business over the next six months, although most six-month indicators were lower than in May. Summary of Returns June 2007 June vs. May Six Months from now vs. June Prev. Prev. Diff. Inc. No ch. Dec. Diff. Diff. Inc. No ch. Dec. Diff. Index Index Index Index General Busines 4.2 39.8 34.2 21.8 18.0 | 30.8 41.3 32.7 24.6 16.7 Conditions | | New Orders 8.7 43.6 30.2 25.3 18.3 | 30.1 43.3 29.8 24.3 19.1 | Shipments 9.3 31.4 39.7 26.5 5.0 | 25.9 48.6 30.6 19.3 29.3 | Unfilled Orders -9.1 23.7 51.7 24.4 -0.7 | 4.8 24.3 56.4 19.2 5.1 | Delivery Times -8.2 15.4 61.3 18.9 -3.5 | -3.6 13.7 70.2 16.1 -2.4 | Inventories -6.9 21.9 42.8 30.1 -8.2 | -8.2 21.3 50.6 27.1 -5.7 | Prices Paid 32.3 40.5 48.7 10.7 29.7 | 42.0 48.4 41.2 10.2 38.2 | Prices Received 2.2 18.5 67.3 13.4 5.1 | 28.1 35.8 51.0 11.7 24.1 | Number of Emp. 12.9 21.4 61.8 15.8 5.6 | 17.4 26.5 54.1 16.0 10.4 | Avg. Emp. Wrkwk -5.5 20.4 57.5 20.7 -0.3 | 16.7 27.3 53.4 17.4 9.9 | Capital Ex. -- -- -- -- -- | 13.3 31.4 51.5 13.3 18.0 | Notes: (1) Items may not add to 100 percent because of omission by respondents. (2) All data are seasonally adjusted. (3) Diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. (4) Survey results reflect data received through June 18, 2007. Special Questions (June 2007) 1) What is the probability that you will relocate some or all of your operations out of the tri-state region over the next five years? Average: 2007 2006 Probability of relocating some operations: 26.9 15.9 Probability of relocating all operations: 5.4 1.9 2) How important are the following factors in influencing your firm's decision to stay in/leave the tri-state region? Very or Most Very or Most Relevant Relevant For Staying (%)* For Leaving (%)* Heavily invested in fixed capital 72.4 -- Availability of skilled workers 57.3 63.8 Proximity to customers 48.7 38.3 Costs of labor 45.2 84.4 Taxes/subsidies and/or regulations 33.8 66.0 Cost of energy (electricity, oil, gas, etc.) 33.3 52.2 Proximity to suppliers or raw materials 20.5 21.7 *Firms were asked to provide one of the following categories for each factor: “not relevant,” “somewhat relevant,” “very relevant,” or “most relevant.” The responding firms characterized themselves as single-site manufacturing plant (54 percent); headquarters and manufacturing site of multi-site firm (28 percent); single manufacturing plant that is part of a multi-site firm (10 percent); and other (5 percent). May 2007 Activity in the region's manufacturing sector improved slightly in May, according to firms polled for this month's Business Outlook Survey. Indicators for general activity, new orders, shipments, and employment all improved from their readings in April. Firms continued to report higher input costs, but prices received for their own products remained steady. The region's manufacturing executives were slightly more optimistic about future activity, with most future indicators increasing from their readings in April. Indicators Move Higher The survey's broadest measure of manufacturing conditions, the diffusion index of current activity, increased from 0.2 in April to 4.2 this month, its highest reading since January (see Chart). Forty-one percent of the firms indicated no change in activity from April, but the percentage of firms reporting increases (30 percent) exceeded the percentage reporting decreases (26 percent). Demand for manufactured goods, as represented by the survey's new orders index, showed improvement this month. The new orders index rose six points, to its highest reading since October. The current shipments index increased five points. Indexes for delivery times and unfilled orders, although remaining negative, improved from their April readings. Evidence of improved manufacturing conditions is also seen in replies concerning employment this month. While 56 percent of the firms reported steady employment levels in May, the percentage of firms reporting increases (28 percent) was higher than the percentage reporting decreases (16 percent). The current employment index, at 12.9, is 10 points higher than in April. The average workweek index suggests fewer hours worked this month: The index dropped 11 points, descending into negative territory. Cost Pressures Remain, But Prices for Finished Goods Are Near Steady Respondents reported higher costs for inputs again this month. The prices paid index increased eight points and has now increased for four consecutive months. Forty percent of the firms reported higher input prices, up slightly from 37 percent in April. Eight percent reported lower input prices in May, down from 13 percent in April. On balance, the firms reported nearly steady prices for their own manufactured goods this month. The percentage of firms reporting increased prices (16 percent) was nearly offset by the percentage reporting lower prices (13 percent). The prices received index fell three points, to 2.2, its lowest reading since August 2003. Six-Month Forecasts Improve Again The outlook for manufacturing growth over the next six months showed further improvement this month. The future general activity index increased from a reading of 25.8 to 30.8, its second consecutive month of increase and its highest reading since December 2005 (see Chart). The indexes for future new orders and shipments also increased, by six points and one point, respectively. Firms were also more optimistic this month about future increases in employment. Thirty-six percent expect employment increases, up from 27 percent last month. The future employment index increased six points, reaching its highest level since January. In special questions this month, firms were asked about how they would characterize the current demand for their products compared to the beginning of the year (see Special Questions). Although the largest percentage (42 percent) indicated that demand was about as expected, firms indicating that demand was greater than expected (about 32 percent) outnumbered those indicating it was less than expected (27 percent). At the extremes, however, 5 percent said demand was significantly greater than expected, and 11 percent said it was significantly less than expected. Firms were also asked about any change in capital spending plans since January. Half of the firms indicated that there had been no change in plans. Twenty-eight percent indicated that capital spending plans had increased, while 22 percent said plans had been decreased, delayed, or postponed since January. In general, firms that have increased their expected spending were those indicating current demand is greater than or the same as expected at the beginning of the year. Those with lowered spending plans were the firms indicating that current demand is less than expected. Summary Indicators for general activity, new orders, shipments, and employment all showed some improvement this month, following several months of nearly flat activity. Cost pressures continue to be reported by a significant share of the firms, but only slightly more firms reported higher prices for their own manufactured goods than reported price decreases. Firms expect improvement in manufacturing business over the next six months, and expectations are higher than in April. Special Questions (May 2007) 1. How would you characterize the current demand for your product(s) compared to what was expected at the beginning of the year? Significantly greater than expected 4.9% Somewhat greater than expected 26.8% subtotal 31.7% ............................................................................. About what was expected 41.5% 41.5% ............................................................................. Somewhat less than what was expected 15.8% Significantly less than what was expected 11.0% subtotal 26.8% ............................................................................. Total 100.0% 100.0% 2. To what extent have you changed your planned spending on capital since January? % of firms that indicated current demand: Total | > expected < expected about same* Increased significantly 22.0 | 12.2 0.0 9.8 Increased somewhat 6.1 | 3.7 1.2 1.2 No change 50.0 | 14.6 11.0 24.4 Decreased somewhat 9.8 | 1.2 3.7 4.9 Decreased significantly 3.6 | 0.0 2.4 1.2 Delayed until later in the year 6.1 | 0.0 6.1 0.0 Postponed indefinitely 2.4 | 0.0 2.4 0.0 Total 100.0% | 31.7% 26.8% 41.5% * Last three columns are breakdowns of question 2 based on answers to question 1 above. Summary of Returns May 2007 May vs. April Six Months from now vs. May Prev. Prev. Diff. Inc. No ch. Dec. Diff. Diff. Inc. No ch. Dec. Diff. Index Index Index Index General Busines 0.2 30.1 40.9 25.9 4.2 25.8 41.0 36.3 10.2 30.8 Conditions New Orders 2.8 30.7 44.1 22.1 8.7 23.5 44.4 30.0 14.3 30.1 Shipments 4.3 31.1 45.6 21.9 9.3 24.8 44.2 31.0 18.3 25.9 Unfilled Orders -13.7 17.5 51.6 26.6 -9.1 -3.2 26.4 44.0 21.7 4.8 Delivery Times -11.9 9.4 72.6 17.5 -8.2 -6.7 17.0 58.1 20.6 -3.6 Inventories -3.1 17.9 54.1 24.8 -6.9 -0.6 18.2 46.7 26.4 -8.2 Prices Paid 24.3 39.8 52.6 7.5 32.3 32.3 48.0 42.7 6.0 42.0 Prices Received 5.2 15.6 68.9 13.4 2.2 20.4 36.8 47.9 8.6 28.1 Number of Emp. 2.5 28.4 56.1 15.5 12.9 11.7 35.5 42.4 18.1 17.4 Avg. Emp. Wrkwk 5.5 13.8 64.8 19.3 -5.5 6.0 27.2 56.9 10.4 16.7 Capital Ex. -- -- -- -- -- 12.3 26.5 46.2 13.2 13.3 Notes: (1) Items may not add to 100 percent because of omission by respondents. (2) All data are seasonally adjusted. (3) Diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. (4) Survey results reflect data received through May 15, 2007. April 2007 Activity in the region's manufacturing sector was basically unchanged again this month, according to firms polled for the Business Outlook Survey. The index for general activity was near zero, and indicators for new orders, shipments, and employment were only slightly positive, suggesting little change from March. Regarding future activity, the region's manufacturing executives were somewhat more optimistic this month than they were in March. Growth in Manufacturing Stalled The survey's broadest measure of manufacturing conditions, the diffusion index of current activity, was unchanged at 0.2 this month (see Chart). Forty-four percent of the firms indicated no change in activity from March, and the percentage of firms reporting increases was equal to the percentage reporting decreases (28 percent). Demand for manufactured goods, as represented by the survey's new orders index, reflects virtually no growth again this month. The new orders index, at 2.8, was only one point higher than in March, and the shipments index fell almost three points, to 4.3, suggesting little change from last month. Indexes for delivery times and unfilled orders remained negative, indicating shorter delivery times and a decline in unfilled orders. Overall employment in the manufacturing sector was steady this month, reflecting the lack of growth in the general indicators. Sixty-three percent of the firms reported near steady employment levels in April, and the percentage of firms reporting increases (19 percent) was only slightly higher than the percentage reporting decreases (16 percent). The current employment index, at 2.5, was basically unchanged from its level in March. The average workweek index edged slightly higher: 18 percent of the firms reported increased hours; 12 percent reported fewer hours. Cost Pressures Remain Area manufacturers reported higher costs for inputs again this month. The prices paid index edged three points higher and has now increased for three consecutive months. Thirty-seven percent of the firms reported higher input prices, up seven points from March; 13 percent reported lower input prices in April. Despite increased costs, fewer firms reported higher prices for their own goods this month: 17 percent reported higher prices, down nine points from March. The prices received index fell 11 points, to 5.2, its lowest reading since August 2005. Six-Month Forecasts Improve The outlook for manufacturing growth over the next six months showed some improvement this month. The future general activity index increased from 17.4 to 25.8, the highest reading since April 2006 (see Chart). The indexes for future new orders and shipments remained near their readings in March. Forty-one percent of the firms expect increases in new orders over the next six months; 42 percent expect increases in shipments. Firms are more cautious in their responses about expected increases in employment over the next six months. Twenty-seven percent expect employment increases; 15 percent expect decreases. The future employment index, however, increased three points from its March reading. In special questions this month, firms were asked about their recent experience filling job openings (see Special Questions). Sixty-four percent of the firms said they had recently experienced problems filling job openings because applicants lacked sufficient skills. The percentage of firms experiencing this problem has risen over the three years this question has been asked. The most frequently cited skills that applicants lacked were skills in the use of production machines or tools; specific plant and system operator skills; and supervision, management, or administrative skills. About 30 percent of the respondents indicated that the gap between required skills and available skills has grown over the past year. Summary Overall activity in the region's manufacturing sector was steady this month, and indicators for new orders, shipments, and employment were only slightly positive. Upward pressures on input costs continue to be reported by a significant share of the firms, but only a slightly higher percentage of firms reported increased prices for their own manufactured goods than reported a decrease. The manufacturers' outlook remains optimistic, and most of the survey's six-month indicators were slightly higher than in March. Special Questions April 2007 1. Has your firm experienced problems filling job openings in the past three months because applicants did not have sufficient qualifications? April 2007 March 2006 April 2004 Yes 64.3% 51.4% 42.0% No 22.6% 37.2% 36.1% Have had no openings 13.1% 11.4% 21.9% Total 100.0% 100.0% 100.0% If yes, what are the three most significant skill categories that applicants are lacking? Percent choosing specific skill category* Skills in the use of production machines or tools 76.7% Specific plant and system operator skills 69.5% Supervisory, management, or admin. skills 57.1% Basic skills (reading, writing, math) 48.0% English language skills 25.0% Computer skills 19.1% * Totals sum to more than 100% because each respondent could select multiple categories. 2. In general, how has the gap between required skills and available skills changed over the following periods? Now, compared Now, compared to six months ago to one year ago Larger 18.0% 30.3% Smaller 6.4% 10.5% Same 75.6% 59.2% Total 100.0% 100.0% Summary of Results April 2007 April vs. March Six Months from now vs. April Prev. Prev. Diff. Inc. No ch. Dec. Diff. Diff. Inc. No ch. Dec. Diff. Index Index Index Index General Busines 0.2 27.9 44.4 27.7 0.2 17.4 44.4 34.7 18.6 25.8 Conditions New Orders 1.9 32.2 37.5 29.4 2.8 23.3 41.2 36.9 17.8 23.5 Shipments 6.8 30.0 44.4 25.7 4.3 22.5 42.4 32.7 17.6 24.8 Unfilled Orders -20.9 12.3 59.7 26.0 -13.7 -1.1 18.1 55.6 21.2 -3.2 Delivery Times -13.2 6.0 71.2 17.9 -11.9 -16.5 9.5 68.0 16.1 -6.7 Inventories -3.7 19.7 57.4 22.8 -3.1 -9.8 25.0 44.5 25.7 -0.6 Prices Paid 21.8 36.8 47.8 12.6 24.3 26.9 41.5 44.8 9.2 32.3 Prices Received 16.3 17.3 70.6 12.1 5.2 15.0 30.3 58.6 9.8 20.4 Number of Emp. 2.3 18.5 62.5 16.0 2.5 8.9 27.0 54.0 15.2 11.7 Avg. Emp. Wrkwk -4.9 17.8 62.6 12.3 5.5 6.4 22.2 54.8 16.3 6.0 Capital Ex. -- -- -- -- -- 25.3 23.3 47.3 10.9 12.3 Notes: (1) Items may not add to 100 percent because of omission by respondents. (2) All data are seasonally adjusted. (3) Diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. (4) Survey results reflect data received through April 17, 2007. March 2007 Activity in the region's manufacturing sector was mostly steady again this month, according to firms polled for the Business Outlook Survey. The index for general activity was near zero, and the indicators for new orders, shipments, and employment were only slightly positive this month, suggesting little change from February. The outlook for growth diminished somewhat in March, although manufacturing executives still expect conditions to improve over the next six months. Indicators Show Little Growth The survey's broadest measure of manufacturing conditions, the diffusion index of current activity, decreased slightly from 0.6 in February to 0.2 this month (see Chart). Demand for the output of the firms surveyed showed only slight improvement this month: The new orders index increased two points, from -0.5 in February to 1.9 this month. The index had been negative in three of the previous four months. The shipments index increased from 1.7 in February to 6.8 this month. Indexes for delivery times and unfilled orders remained negative, indicating shorter delivery times and a decline in unfilled orders. Overall employment in the region's manufacturing sector was mostly steady this month, reflecting continued lack of growth. Sixty-three percent of firms reported steady employment levels in March, and the percentage of firms reporting increases in employment (20 percent) was only slightly higher than those reporting decreases (17 percent). The current employment index increased three points but is at a relatively low reading of 2.3. Moreover, firms reported fewer hours worked this month: The average workweek index remained negative, although it was slightly higher than in February. Price Pressures Still Evident Area manufacturers reported higher costs again this month. Thirty percent reported higher input prices, and 9 percent reported lower input prices. The prices paid index increased six points this month, the second consecutive month of increase. The index had trended down over the previous six months.The prices received index edged seven points higher this month. The majority of manufacturers (62 percent) reported steady prices, 26 percent reported higher prices, and 10 percent lower prices. Six-Month Indicators Weaken; Q2 Growth Will Pick Up The outlook for manufacturing growth over the next six months showed a slight moderation this month. The future general activity index fell three points, and most of the other future indicators followed suit: The index for future new orders decreased four points, and future shipments decreased one point. Firms were also less optimistic about future growth in employment. The future employment index decreased eight points; 25 percent of the firms expect to increase employment over the next six months, and 16 percent expect to decrease it. In special questions this month, firms were asked about expected growth in production during the second quarter (see Special Questions). Fifty-nine percent of the firms indicated that production would increase in the second quarter; only about one-third of these firms said the increase was due to seasonal factors. Twenty-three percent indicated that production would decrease, and a small percentage of these firms attributed the expected decrease to seasonal factors. The largest share of firms (43 percent) indicated that the growth expected represented “some acceleration” from the first quarter; 10 percent indicated that it represented a “significant acceleration.” Summary Overall activity in the region's manufacturing sector was steady this month, and indicators for new orders, shipments, and employment improved only slightly from February. Firms continue to report higher prices for inputs and for their own manufactured goods, and the survey's price indexes edged higher this month. The manufacturers' outlook remains generally optimistic: They expect a pickup in growth during the second quarter and improved conditions over the next six months. Special Questions (March 2007) 1. What percentage change do you anticipate for your firm's production in the second quarter of 2007 over the first quarter? Firms Attributing Expected All Reporting Change to Seasonal Factors Firms (% of all reporting firms) % % Increase of more than 4 % 30.4 10.4 Increase of 2-4% 19.0 7.6 Increase of 0-2% 9.5 3.3 Subtotal Increase 58.9 21.3 Decrease of 0-2% 5.3 0.0 Decrease of 2-4% 7.4 3.3 Decrease of more than 4% 10.5 1.1 Subtotal Decrease 23.2 4.4 No Change 17.9 17.9 1.1 1.1 Totals 100.0% 100.0% 26.8% 26.8% 2. Would this represent an acceleration or deceleration of growth from the first quarter of 2007? (percent of responses) Significant acceleration 9.5 3.3 Some acceleration 43.2 14.7 Subtotal acceleration 52.7 18.0 Some deceleration 15.8 3.3 Significant deceleration 4.2 0.0 Subtotal deceleration 20.0 3.3 No Change 27.3 27.3 5.5 5.5 Totals 100.0% 100.0% 26.8% 26.8% Summary of Results March 2007 March vs. February Six Months from now vs. March Prev. Prev. Diff. Inc. No ch. Dec. Diff. Diff. Inc. No ch. Dec. Diff. Index Index Index Index General Busines 0.6 20.0 58.9 19.8 0.2 20.3 35.0 44.9 17.6 17.4 Conditions New Orders -0.5 28.2 44.0 26.3 1.9 27.2 40.7 37.3 17.4 23.3 Shipments 1.7 31.1 44.5 24.3 6.8 23.2 40.7 38.9 18.2 22.5 Unfilled Orders -10.5 10.9 57.2 31.8 -20.9 -10.2 18.3 57.4 19.5 -1.1 Delivery Times -6.3 10.0 66.8 23.2 -13.2 -14.0 9.3 62.7 25.7 -16.5 Inventories -1.9 19.0 57.4 22.6 -3.7 -6.9 14.3 53.3 24.0 -9.8 Prices Paid 15.8 30.4 59.9 8.6 21.8 25.6 36.0 48.7 9.1 26.9 Prices Received 9.4 26.3 61.7 10.1 16.3 11.6 28.3 54.5 13.2 15.0 Number of Emp. -0.4 19.6 62.9 17.3 2.3 17.0 25.1 55.2 16.2 8.9 Avg. Emp. Wrkwk -12.9 11.2 70.3 16.1 -4.9 2.8 17.4 67.8 11.0 6.4 Capital Ex. -- -- -- -- -- 18.7 33.4 53.7 8.1 25.3 Notes: (1) Items may not add to 100 percent because of omission by respondents. (2) All data are seasonally adjusted. (3) Diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. (4) Survey results reflect data received through March 13, 2007. February 2007 Activity in the region's manufacturing sector was mostly steady this month, according to firms polled for the Business Outlook Survey. Indicators for general activity, new orders, shipments, and employment were close to zero this month, suggesting little change from January. The outlook for growth diminished somewhat in February, although manufacturing executives still expect conditions to improve over the next six months. Indicators Suggest Weakness The survey's broadest measure of manufacturing conditions, the diffusion index of current activity, decreased from 8.3 in January to 0.6 this month (see Chart). This month, 24 percent of the firms reported increased activity; 23 percent reported decreased activity. Demand for the output of the firms surveyed has shown little growth in recent months: The new orders index declined almost two points, from 1.3 in January to -0.5, and has now been negative in three of the past four months. The shipments index, which increased 10 points in January, declined 22 points this month, reaching its lowest reading since September. Indexes for delivery times and unfilled orders remained negative, indicating shorter delivery times and a decline in unfilled orders. Overall employment in the manufacturing sector was steady this month, reflecting the lack of growth in the general indicators. Sixty-two percent of firms reported steady employment levels in February, and the percentage of firms reporting declines and those reporting increases was the same: 19 percent. The current employment index declined eight points from its reading in January. Firms reported fewer hours worked: The average workweek index dropped from 1.8 in January to -12.9. Price Pressures Remain Moderate On balance, area manufacturers reported higher costs again this month. Thirty-two percent reported higher input prices, and 16 percent reported lower input prices (the highest share of firms reporting price decreases in five years). Although the prices paid index increased four points this month, the index has generally trended down over the previous six months (see Chart 2). The prices received index edged two points lower this month. The majority of manufacturers (65 percent) reported steady prices, 20 percent reported higher prices, and 11 percent reported lower prices. Forecasts Are Optimistic; Exports Are Expected to Increase The outlook for manufacturing growth over the next six months showed only a slight moderation this month, following a marked improvement in January. The future general activity index fell only two points, and the other six-month indicators showed a mixed pattern: The index for future new orders increased four points, but shipments decreased five points. The future employment index decreased three points; 29 percent of the firms expect to increase employment over the next six months, down from 36 percent in January. In special questions this month, firms were asked about the share of their products that are exported (see Special Questions). Thirty-six percent of the firms indicated that the share of exported products had increased in the past year, while only 3 percent said it had decreased. Thirty percent of the firms expect the share of exports to increase over the next year; 1 percent expect it to decline. The average percent of total output exported among the responding manufacturers was slightly more than 10 percent. Summary Overall activity in the region's manufacturing sector was mostly steady this month, and indicators for shipments, new orders, and employment suggest no growth. Firms continue to report higher prices for inputs and for their own manufactured goods, but the survey's price indexes remain at relatively low levels. The manufacturers' outlook remains optimistic, but most of the survey's six-month indicators were lower this month than in January. ________________________________________________________________________________ Special Questions (February 2007) 1. Over the past year, has your share of exported products: Increased 36.0% Decreased 2.7% Stayed the same 68.3% 2. Over the remainder of this year, do you expect the share of products you export to: Increase 29.9% Decrease 1.3% Stay the same 68.8% ________________________________________________________________________________ Business Outlook Survey Summary of Results February 2007 February vs. January Six Months from now vs. February Prev. Prev. Diff. Inc. No ch. Dec. Diff. Diff. Inc. No ch. Dec. Diff. Index Index Index Index General Busines 8.3 23.8 51.1 23.1 0.6 22.4 37.7 40.3 17.4 20.3 Conditions New Orders 1.3 31.1 37.3 31.6 -0.5 23.4 45.0 35.2 17.8 27.2 Shipments 23.9 25.6 47.3 23.8 1.7 28.5 39.9 40.0 16.7 23.2 Unfilled Orders -15.4 17.0 54.0 27.6 -10.5 -4.8 14.0 56.8 24.2 -10.2 Delivery Times -7.1 7.1 78.5 13.4 -6.3 -9.3 9.9 58.2 23.9 -14.0 Inventories 0.4 18.9 58.4 20.8 -1.9 -8.8 16.8 52.9 23.8 -6.9 Prices Paid 11.9 32.2 49.5 16.4 15.8 30.1 37.8 43.2 12.3 25.6 Prices Received 11.6 20.4 65.3 11.1 9.4 31.1 25.3 53.3 13.7 11.6 Number of Emp. 7.9 18.6 61.5 19.0 -0.4 20.2 28.5 54.9 11.5 17.0 Avg. Emp. Wrkwk 1.8 6.8 73.2 19.7 -12.9 6.7 18.7 60.9 15.9 2.8 Capital Ex. -- -- -- -- -- 24.0 29.6 41.7 10.9 18.7 Notes: (1) Items may not add to 100 percent because of omission by respondents. (2) All data are seasonally adjusted. (3) Diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. (4) Survey results reflect data received through February 13, 2007. Business Outlook Survey January 2007 Economic conditions in the region's manufacturing sector improved in January, according to firms polled for this month's Business Outlook Survey. Indicators for general activity and shipments reflect modest growth this month, although the new orders index showed virtually no growth. Consistent with modest growth in activity, input price pressures moderated again this month. Manufacturing executives were substantially more optimistic about future activity this month; most future indicators rose from their readings in December. Indicators Suggest Modest Growth The survey's broadest measure of manufacturing conditions, the diffusion index of current activity, increased from a revised reading of -2.3 in December to 8.3 (see Chart).* This month, 25 percent of the firms reported increased activity; 17 percent reported decreased activity. The new orders and shipments indexes offer mixed signals about the strength of this month's overall improvement. Demand for manufactured goods has not yet recovered much: The new orders index rose two points, from -0.9 to 1.3, after negative readings for two consecutive months. The shipments index increased 10 points from December; 37 percent of the firms reported an increase in shipments; 13 percent reported a decrease. Indexes for delivery times and unfilled orders remained negative, indicating shorter delivery times and a decline in unfilled orders. Evidence of modest growth in manufacturing is suggested by replies concerning employment and hours worked. The percentage of firms reporting an increase in employment (21 percent) was somewhat higher than the percentage reporting decreases (13 percent). The current employment index was virtually unchanged from its revised December reading. The average workweek index edged four points higher, but the percentage of firms reporting longer hours (16 percent) was nearly the same as the percentage reporting shorter hours (15 percent). Cost Pressures Moderate Again Respondents reported higher costs for inputs again this month, but the percentage of firms continued to decrease. The prices paid index has now fallen for six straight months (see Chart). Twenty-four percent of the firms reported higher input prices this month; 12 percent reported lower input prices. The prices received index edged three points higher. Still, the largest percentage of manufacturers reported steady prices (72 percent); 19 percent reported higher prices, and 7 percent reported lower prices. Forecasts Are More Optimistic Expectations for manufacturing growth over the next six months showed significant improvement. The future general activity index increased from a revised reading of 5.4 in December to 22.4 in January, its highest level in nine months (see Chart). The indexes for future new orders and shipments also increased, 11 and 12 points, respectively. The future employment index increased five points; 36 percent of the firms expect to increase employment over the next six months; 15 percent expect decreased employment. In special questions this month, firms were asked about their expectations for capital spending over the next six to 12 months relative to actual spending during the past year (see Special Questions). Over 40 percent of the firms said they plan to increase capital spending-;nearly the same percentage as at the end of last year. Nearly 22 percent said they plan to decrease spending, up from 15 percent at the end of last year. Forty-one percent of the firms said actual capital spending in 2006 was higher than had been planned at the beginning of the year; 20 percent said capital spending was lower than originally planned. The most frequently cited reasons for planned increases in spending for 2007 were the need to replace capital goods, a high current capacity utilization rate, and high expected growth of sales. Summary Conditions in the region's manufacturing sector improved slightly this month. Indicators for general activity, shipments, and employment suggest some growth, although the indicator for new orders reflects continued weakness. Firms reported that cost pressures are continuing to moderate, and less than one-fifth of the firms reported higher prices for their own finished manufactured goods. Indicators for the next six months improved notably this month. *The survey's annual historical revisions, which incorporate new seasonal adjustment factors, were released on Thursday, January 11, 2007. Revisions for selected series from 1999 to 2006 are listed on pages 3-4 of this release. The full set of revised historical data is available at: philadelphiafed.org/research-and-data/regional-economy/business-outlook-survey/historicalrevisions2007.html. ________________________________________________________________________________ Special Questions (January 2007) 1. Do you expect your firm's spending on new plant and equipment over the next six to 12 months to increase, decrease, or remain more or less unchanged relative to your actual spending over the past six to 12 months? January January January January 2007 2006 2005 2004 % % % % Increase 40.2 39.2 43.8 58.2 Decrease 21.7 15.2 15.8 12.7 Unchanged 38.1 45.6 40.4 29.1 2. Were your actual capital expenditures in 2006 above,below, or the same as your plans at the beginning of the year? Above 41.20% Below 19.60% Same as 39.20% Total 100.00% 3. What are the major factors behind your plan to increase capital spending? (Top five chosen)* January January 2007 2006 % % Need to replace other capital goods 60.5 51.3 Capacity utilization is currently high 53.5 46.2 Expected growth of sales is high 48.8 48.7 Need to replace information technology 23.3 33.3 equipment Firm's cash flow or balance sheet position 23.3 20.5 has improved 4. What are the major factors behind your plan to decrease capital spending? (Top four chosen)* January January 2007 2006 % % Limited need to replace other capital goods 48.0 56.4 Limited need to replace information 36.0 56.4 technology equipment Firm's cash flow or balance sheet position 28.0 10.3 has not improved Capacity utilization is currently low 24.0 30.8 * Percentages may add to greater than 100 because firms were asked to indicate more than one factor if applicable. ________________________________________________________________________________ Business Outlook Survey Summary of Results January 2007 January vs. December Six Months from now vs. January Prev. Prev. Diff. Inc. No ch. Dec. Diff. Diff. Inc. No ch. Dec. Diff. Index Index Index Index General Busines -2.3 24.9 56.7 16.5 8.3 5.4 42.5 30.1 20.1 22.4 Conditions New Orders -0.9 29.2 42.7 27.9 1.3 12.7 44.3 33.2 20.8 23.4 Shipments 14.0 36.5 48.9 12.6 23.9 16.5 47.7 31.1 19.1 28.5 Unfilled Orders -18.6 13.2 58.3 28.5 -15.4 -3.1 16.3 60.2 21.1 -4.8 Delivery Times -4.9 9.1 73.8 16.2 -7.1 -7.0 8.4 72.2 17.7 -9.3 Inventories -0.9 20.2 58.0 19.8 0.4 3.4 18.7 51.7 27.5 -8.8 Prices Paid 19.0 23.6 61.4 11.7 11.9 33.2 41.0 44.9 10.9 30.1 Prices Received 8.9 18.6 72.3 7.0 11.6 26.0 41.9 45.1 10.8 31.1 Number of Emp. 7.5 20.9 60.5 13.0 7.9 14.7 35.6 45.8 15.4 20.2 Avg. Emp. Wrkwk -2.3 16.3 67.5 14.5 1.8 -3.8 19.8 64.3 13.1 6.7 Capital Ex. -- -- -- -- -- 4.4 34.2 42.2 10.1 24.0 Notes: (1) Items may not add to 100 percent because of omission by respondents. (2) All data are seasonally adjusted. (3) Diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease. (4) Survey results reflect data received through January 16, 2007.