The results of the Philadelphia Fed’s monthly Business Outlook Survey are out.
The report’s headline index fell to 19.8 in October from September’s 22.3 reading. Economists predicted a bigger slide to 15.0.
The new orders sub-index jumped to 27.5 from 21.2, and the number of employees sub-index rose to 15.4 from 10.3. The average employee workweek sub-index, however, fell to 8.5 from 12.2.
The Philly Fed survey gauges manufacturing activity in eastern Pennsylvania, southern New Jersey, and Delaware.
Goldman Sachs economist Jan Hatzius considers it one of the best predictors of overall U.S. economic growth.
Citi’s Peter D’Antonio disagrees.
“In the absence of data we caution against looking at the Philly survey, as it is notoriously erratic and poorly correlated with actual activity, in our view,” wrote D’Antonio in a preview of the release.
Below is the full text of the release:
October 2013 Business Outlook Survey
Manufacturing growth in the region continued in October, according to firms responding to this month’s Business Outlook Survey. The survey’s broadest indicators for general activity, new orders, shipments, and employment were positive, signifying growth. The survey’s indicators of future activity suggest continued optimism about growth over the next six months.
Indicators Suggest Continuing Expansion
The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, edged down from 22.3 in September to 19.8 this month (see Chart). The index has now been positive for five consecutive months. The percentage of firms reporting increased activity this month (36 per cent) was greater than the percentage reporting decreased activity (16 per cent).
The demand for manufactured goods, as measured by the current new orders index, increased 6 points, to 27.5, its highest reading since March 2011. Shipments continued to expand: The index fell 1 point to 20.4, following a 22 point increase last month. The diffusion indexes for inventories, delivery times, and unfilled orders were all positive and higher than last month.
Labour market indicators showed improvement this month. The current employment index increased 5 points, to 15.4, its highest reading since May 2011. The percentage of firms reporting increases in employment (23 per cent) exceeded the percentage reporting decreases (8 per cent).
Price Indexes Suggest Moderate Pressures
The indexes for prices reflected moderate price pressures this month. Input price pressures were slightly less widespread this month: The prices paid index fell 4 points, to 21.7. With respect to prices received for manufactured goods, 21 per cent of firms reported higher prices, and 7 per cent reported lower prices. The prices received index increased 2 points, to 14.2.
Six-Month Indicators Reflect Optimism
The survey’s future indicators have suggested markedly improved optimism among the reporting manufacturers in recent months. The future general activity index increased 3 points, from 58.2 to 60.8, exceeding its previous highs since the end of the recession in 2009 (see Chart). Slightly over 63 per cent of firms expect increases in activity over the next six months; only 2 per cent of firms indicated that they expect decreases over the next six months. The indexes for future new orders and shipments also remained at relatively high levels. Over 67 per cent of firms expect increases in new orders and 57 per cent of firms expect increases in shipments over the next six months. The future employment index fell 4 points; however, nearly 37 per cent of the firms expect to increase employment over the next six months.
For this month’s special questions, manufacturers were asked about changes in their workforce and the changing use of flexible workers over the past year (see Special Questions). The share of firms that increased their total workforce over the past year (51 per cent) was significantly greater than those that decreased their workforce (27 per cent), reflecting a marked improvement from when the question was asked last year. The mix of employment has changed for many firms. For example, 76 per cent of firms indicated that they use part-time workers. Of this number, 15 per cent of firms indicated that their share of the total part-time workforce has increased over the past year, whereas 5 per cent of the firms decreased their share of these workers. Fewer firms use temporary/agency workers (65 per cent) and contract workers (39 per cent) compared with part-time workers. Among the firms that use temporary/agency and contract workers, these workers account for nearly 10 per cent of their workforce.
According to respondents to the October Business Outlook Survey, the region’s manufacturing sector continued to grow this month. All the broad indicators were positive, with firms reporting improvements in new orders and hiring. Input price pressures were slightly less widespread this month. Firms’ outlook has shown notable improvement in recent months, with a majority of firms now expecting to expand manufacturing activity over the next six months and more than one-third expecting to add workers.