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Business Outlook Survey: Manufacturing Conditions are Improving
added: 2009-11-20

Activity in the region’s manufacturing sector is picking up, according to firms polled for this month’s Business Outlook Survey. Indexes for general activity, new orders, and shipments all improved this month. The overall level of employment was mostly steady this month, and the average work hours index was positive for the first time in more than two years. The region’s manufacturing executives expect increasing activity over the next six months, although expectations have moderated somewhat in the last several months. Low rates of current capacity utilization are suppressing capital spending plans.

Indicators Suggest Activity Is Picking Up

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, increased from a reading of 11.5 in October to 16.7 this month. The index has now remained positive for four consecutive months. The percentage of firms reporting increases in activity this month (29 percent) exceeded the percentage reporting decreases (12 percent). Other broad indicators suggest similar improvement this month. The current new orders index also remained positive for the fourth consecutive month and increased nine points. The current shipments index increased 12 points. The current inventory index, although still negative, increased 15 points, from -31.8 in October to -17.3 this month. Indexes for unfilled orders and delivery times remained negative.

Labor market conditions have been stabilizing in recent months. The current employment index increased six points, from -6.8 to near zero. The percentage of firms reporting employment increases and decreases were essentially the same this month (14 percent). The workweek index edged seven points higher in November to its first positive reading in 23 months.

Prices of Manufactured Goods Are Near Steady

Recently reported declines in prices for manufactured goods were not as widespread this month. The prices received index increased three points, to -1.5, suggesting nearly steady prices for manufactured goods this month. Still, firms continue to report higher prices for purchased inputs. The prices paid index, which had been increasing for three consecutive months, fell back six points this month, to 14.9.

Manufacturers Are Generally Optimistic

The future general activity index remained positive for the 11th consecutive month but decreased from 39.8 in September to 36.8, its lowest reading since April. Despite lower readings in recent months, indicators of future activity remain near levels not seen since 2004. Indexes for future new orders and shipments declined this month, falling five points and nine points, respectively. For the seventh consecutive month, the percentage of firms expecting employment to increase over the next six months exceeded the percentage expecting declines (27 percent versus 19 percent).

In this month’s special questions, firms were asked about their current capacity utilization and capital spending plans. Over 58 percent of the firms indicated that their current capacity utilization rate was less than 70 percent; only 8 percent of firms reported utilization rates lower than 70 percent before the beginning of the recession. The percentage of firms that indicated capital spending on plant and equipment would be lower next year (41 percent) substantially exceeded the percentage that indicated capital spending would be higher (16 percent). Firms indicated, on average, that capacity utilization would need to increase to nearly 84 percent before they would be inclined to increase spending to increase capacity at their plant.

Summary

According to respondents to the November Business Outlook Survey, manufacturing conditions are improving. The survey’s indicators for general activity, new orders, and shipments were higher this month. Employment was nearly flat this month, and more firms reported an increase in work hours. Firms still expect continued improvement over the next six months, although future indicators suggest that optimism has waned somewhat in recent months. Capital spending plans are being held back by low plant utilization rates.


Source: Business Wire

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