Philly Fed Bank survey finds increasing regional manufacturing activity
Philadelphia, PA—The Federal Reserve Bank of Philadelphia reports that activity in the region's manufacturing sector continues to expand, according to firms surveyed for the bank’s Business Outlook Survey for April 2004.
Philadelphia, PA— The Federal Reserve Bank of Philadelphia reports that activity in the region's manufacturing sector continues to expand, according to firms surveyed for the bank’s Business Outlook Survey for April 2004. Most of the survey's broad activity indicators increased from their readings in March 2004.
The survey also found that mid-Atlantic manufacturing firms continue to report rising prices for inputs and finished goods, although price indexes fell back from their recent highs. Expectations for overall growth over the next six months remain optimistic, and there is some modest improvement in expectations for capital spending this month.
Broad indicators improve
The survey's broadest measure of manufacturing conditions, the diffusion index for current activity, increased from 24.2 to 32.5 in April 2004 from 24.2 in March 2004. This marked the 11th consecutive month the index has been positive. Both the new orders index and the shipments index also showed improvement this month. The new orders index rose four points to 26.1, and the current shipments index increased five points to 27.7. Indexes from the survey suggest that unfilled orders were mostly steady and delivery times were unchanged. The current inventories index showed a notable increase, rising from -12.8 in March to 11.7 this month, its highest reading in 16 months.
The overall improvement in manufacturing is also evident in firms' responses regarding employment. Although the manufacturing employment index was virtually unchanged this month, the index has been positive for seven consecutive months. Twenty-three percent of the manufacturers reported higher employment this month; 11% reported lower employment. Although the workweek index fell nearly eight points, it still indicates that overall work hours were higher this month. The index has remained positive for 10 consecutive months.
Higher costs reported
Firms reported higher costs again this month, but slightly less pressure on their own output prices. More than 57% of the firms surveyed reported higher input prices, and only 5% reported lower prices. Nevertheless, the prices paid diffusion index, now positive for nine consecutive months, fell a modest 1.5 points.
Twenty-eight percent of the firms reported that prices of their own manufactured goods were higher this month, while 14% reported lower prices. The current prices received index fell from 22.6 in March, which was its highest reading since January 1995, to 13.7 this month.
Firms remain optimistic
The survey also found that firms in the Philadelphia Federal Reserve Bank’s coverage area remain generally optimistic. While the diffusion index for future activity decreased from 36.7 to 33.6, it remains at a generally healthy level. Some future indicators improved this month, including the future new orders index, which increased seven points, and the future shipments index, which increased three points. Firms expect unfilled orders to increase over the next six months and delivery times to increase modestly. The future inventory index suggests that little change in inventories is expected over the next six months.
In addition, mid-Atlantic manufacturers remain generally optimistic about employment increases over the next six months. The percentage of firms expecting to increase employment (40%) exceeded the percentage expecting to decrease employment (14%). The future employment diffusion index was unchanged, remaining at the relatively high reading of 26.7. The future capital spending index showed a rise of six points in April 2004 to its highest reading in over four years.
Special questions in the April 2004 survey asked firms about their experiences filling recent job openings. Forty-two percent of the companies indicated that they had recently experienced problems filling job openings because applicants lacked qualifications. The most frequently lacking skills among applicants included production machine abilities; specific plant operator capabilities; and basic skills in reading, writing and math.
Finally, respondents were asked whether the gap between required skills and available skills has changed over time. While only 8.5% of firms reported that the gap is greater than it was last year, more than 53% said it is greater than it was five years ago.
Control Engineering Daily News Desk
Jim Montague, news editor