Philly Fed Firms See Weak Activity

PHILADELPHIA, April 17 /PRNewswire/ -- Activity in the region's
manufacturing sector continued to weaken this month, according to firms polled
for the April Business Outlook Survey. Indexes for general activity,
shipments, new orders, and employment all remained negative this month and
decreased from their readings in March. A significant share of the
manufacturers continued to report price pressures, and more firms reported
higher prices for their own products. Despite the weakness in current
activity, the region's manufacturing executives were cautiously optimistic
about future activity, with most future indicators showing improvement this
month.
Indexes Reflect Weaker Activity
The survey's broadest measure of manufacturing conditions, the diffusion
index of current activity, deteriorated from -17.4 in March to -24.9 this
month (see Chart). The index has remained negative for five consecutive
months. Forty-eight percent of the firms reported no change in activity from
March, but the percentage of firms reporting decreases (38 percent) remained
greater than the percentage reporting increases (13 percent). Other broad
indicators behaved similarly. Demand for manufactured goods, as represented by
the survey's new orders index, decreased from -9.3 to -18.8. The current
shipments index decreased slightly, from -6.3 to -8.0. The index for unfilled
orders remained negative for the eighth consecutive month, but the delivery
times index increased and was positive for the first time in six months. Firms
reported a decline in inventories, and the current inventory index fell 13
points, to its lowest level since September 2001.
Continued weakness in manufacturing is evident in responses about
employment and hours worked this month. The percentage of firms reporting a
decrease in employment (19 percent) was greater than the percentage reporting
an increase (8 percent), and the current employment index fell from -4.7 to -
11.1, its third negative reading in four months. Weakness remained in hours
worked: 18 percent indicated declines in average hours worked; 6 percent
reported increases. The average workweek index declined from -10.0 in March
to -12.3, its fourth consecutive negative reading.
Firms Report Higher Prices
A sizable share of the firms continued to report higher prices, both for
inputs and for their own products. Fifty-five percent of manufacturers
reported higher input prices this month, although the prices paid index edged
slightly lower, from 54.4 in March to 51.6. Price increases for the
manufacturers' own products remained relatively widespread. Thirty-eight
percent of the firms reported increased prices for their own goods this month,
up from 30 percent in March; 8 percent reported lower prices. The prices
received index rose 10 points, to 30.9, its highest reading since November
2005.
Six-Month Outlook Sees Improvement
The future general activity index rebounded from a reading of -0.5 in
March, rising to 13.7, its highest level in five months (see Chart). Thirty-
seven percent of firms expect growth in activity over the next six months; 24
percent expect declines. The indexes for future new orders and shipments also
improved this month, rising eight points and five points, respectively. On
balance, firms expect to maintain current employment levels over the next six
months. The percentage of firms expecting to add workers is essentially the
same as the percentage expecting to make cuts (23 percent).
In this month's special questions, firms were asked about changes in
demand for their products and changes in capital spending plans since January
(see Special Questions). The percentage of firms indicating that demand was
currently lower than they had expected at the beginning of the year (38
percent) exceeded the percentage indicating that demand was greater than
expected (29 percent). With regard to capital spending, the percentage of
firms indicating that they had decreased their capital spending plans (27
percent) was greater than the percentage indicating they had increased them
(19 percent) since January. Moreover, since January, 10 percent of the firms
indicated that they had either delayed planned capital spending until later in
the year or postponed it indefinitely.
Summary
The region's manufacturing sector showed continued weakness in April. The
survey's current indicators for activity, new orders, shipments, employment,
and average hours worked remained negative and declined from their readings in
March. Cost pressures remained widespread, and a larger share of firms
reported price increases for their own manufactured goods this month. Although
somewhat more optimistic about the future this month, manufacturers remain
generally cautious. Firms expect no increase in employment over the next six
months, and some firms have cut back, delayed, or postponed planned capital
spending.

Special Questions (April 2008)

1. How would you characterize the current demand for your product(s)
compared to what was expected at the beginning of the year?
%
Greater than expected 29.0
Significantly greater 8.1
Somewhat greater 20.9
About what was expected 26.8
Less than expected 38.4
Somewhat less 23.3
Significantly less 15.1
No response 5.8
Total 100.0

2. To what extent have you changed your plans for capital spending since
January? Increased 18.6
Increased significantly 5.8
Increased somewhat 12.8
No change 38.4
Decreased 26.8
Decreased somewhat 23.3
Decreased significantly 3.5
Delayed until later in the year 4.6
Postponed indefinitely 5.8
No response 5.8
Total 100.0

BUSINESS OUTLOOK April vs. March
SURVEY
Previous
April Diffusion No Diffusion
2008 Index Increase Change Decrease Index

What is your evaluation
of the level of general
business activity? -17.4 13.1 47.9 38.1 -24.9

Company Business Indicators

New Orders -9.3 20.0 41.2 38.8 -18.8

Shipments -6.3 22.6 46.7 30.7 -8.0

Unfilled Orders -18.7 10.3 61.6 27.1 -16.8

Delivery Times -10.3 14.6 72.9 10.4 4.2

Inventories -13.5 13.6 45.9 39.8 -26.2

Prices Paid 54.4 54.5 41.3 2.9 51.6

Prices Received 21.2 38.4 54.2 7.5 30.9

Number of Employees -4.7 8.2 71.3 19.3 -11.1

Average Employee Workweek -10.0 5.9 73.2 18.2 -12.3

Capital Expenditures -- -- -- -- --

BUSINESS OUTLOOK Six Months from Now vs. April
SURVEY
Previous
April Diffusion No Diffusion
2008 Index Increase Change Decrease Index

What is your evaluation
of the level of general
business activity? -0.5 37.3 34.5 23.6 13.7

Company Business Indicators

New Orders 8.5 38.5 35.9 21.9 16.6

Shipments 10.8 37.2 35.2 21.2 16.0

Unfilled Orders -15.5 11.0 60.8 22.9 -11.9

Delivery Times -19.2 8.4 68.2 18.7 -10.4

Inventories -27.3 18.4 46.2 31.4 -13.1

Prices Paid 64.1 60.4 30.2 5.1 55.3

Prices Received 36.2 45.3 42.0 11.9 33.4

Number of Employees 0.6 22.9 48.9 22.7 0.2

Average Employee Workweek -1.5 9.6 65.8 18.8 -9.2

Capital Expenditures -2.7 27.9 45.9 14.1 13.8

NOTES: (1) Items may not add up to 100 percent because of omission by
respondents.
(2) All data are seasonally adjusted.
(3) Diffusion indexes represent the percentage indicating an
increase minus the percentage indicating a decrease.

(4) Survey results reflect data received through April 15, 2008.

SOURCE Federal Reserve Bank of Philadelphia

Katherine Q. Dibling, senior media representative, +1-215-574-4119, or Robert
McCarthy, public affairs manager, +1-215-574-6112, both of Federal Reserve
Bank of Philadelphia