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PHILADELPHIA FED RELEASE OCTOBER BUSINESS OUTLOOK SURVEY

 PHILADELPHIA FED RELEASE OCTOBER BUSINESS OUTLOOK SURVEY
 PHILADELPHIA, Oct. 15 /PRNewswire/ -- Conditions in the


manufacturing sector have weakened, according to this month's Business Outlook Survey, compiled by the Federal Reserve Bank of Philadelphia Research Department.
 The diffusion index for general business activity registered a negative reading this month, after being positive for seven consecutive months. Individual indicators of manufacturing activity also deteriorated, led by an increase in firms reporting reductions in new orders. Survey responses suggest that shipments are nearly unchanged from those of the previous month. Although a weakening of demand is reported this month, expectations about future activity have not deteriorated. Respondents, on balance, continue to expect improvements in business over the next six months.
 CURRENT CONDITIONS
 The diffusion index for overall business activity fell from a level of 14.7 to -4.7 this month. Although 56 percent of those responding to the survey report no change in activity, the percentage indicating declines from the previous month (25 percent) outnumbers those indicating increases (20 percent). This is the first time since February that the percentage of firms reporting declines in activity outnumbers the percentage reporting increases. Individual indicators of economic activity suggest that demand for manufactured products has weakened and that production has flattened. The shipments diffusion index has fallen from a level of 17.3, recorded in September, to 3.0 this month. Shipments are increasing at 25 percent of the firms polled this month, compared with 22 percent reporting declines. New orders, which had been relatively strong over recent months, also deteriorated this month, according to survey respondents. The new orders diffusion index declined from 20.9 to -4.6 this month, reflecting a large increase in the number of firms reporting declining orders. On balance, surveyed participants also report a drop in employment this month. Although a majority of manufacturing firms (68 percent) report no change in payrolls, the percentage reporting cuts in their work force (20 percent) outnumbers the percentage making additions (12 percent). The employment index, which now stands at -8.5, has fallen from a reading of 0.4 in September.
 PRICES
 Slack demand is apparently placing additional downward pressure on manufactured goods prices. Output prices remain unchanged from the previous month at about 82 percent of the manufacturing establishments. About 13 percent of those polled indicate declines in their prices this month, outnumbering those reporting price increases (only 4 percent). For the first time since January, the percentage of firms reporting declines in prices for raw materials and other purchased inputs outnumbers those reporting increases. Although 77 percent of the firms report no change in these costs, more than 11 percent report declines, compared with less than 10 percent reporting increases. The diffusion index for prices paid by manufacturers now stands at -1.7, its lowest level since April 1986. Only three other months have registered a lower number since the beginning of this series in 1968.
 OUTLOOK
 Although most current indicators are down this month, most indicators regarding activity expected over the next six months are steady or improved. The overall diffusion index for future activity increased from a level of 56.2 in September to 60.9 this month. About 66 percent of the reporting firms expect conditions to improve in the next six months, compared with just 5 percent expecting a deterioration in conditions. Expectations regarding shipments and new orders remain positive; more than half of the firms surveyed forecast gains, while less than 1 in 10 anticipate decreases. On balance, reporters expect unfilled orders to increase and delivery times to hold steady. With respect to labor market conditions, most firms (55 percent) expect to maintain current levels of employment during the next six months. The percentage of firms anticipating increasing employment (30 percent) is twice the percentage expecting reductions (15 percent). On balance, firms expect the average workweek to grow over the next six months as well.
 SUMMARY
 Responses from the October Business Outlook Survey suggest that the region's manufacturing sector is weakening. Shipments are virtually unchanged from the levels reported in the previous month. Most current indicators, especially new orders, showed some deterioration this month. Survey responses also indicate that slackening demand is placing additional downward pressure on both input and output prices. An apparent weakening in business conditions, however, has not affected firms' expectations for the future -- few firms expect any deterioration in business over the next six months.
 Note: The survey covers the Third District, which includes the eastern two-thirds of Pennsylvania, southern New Jersey, including Trenton, and the whole state of Delaware.
 BUSINESS OUTLOOK SURVEY: OCTOBER 1992
 Indicator October vs. September
 Decr. No Incr. Diffusion
 Change Index
 GENERAL BUSINESS
 CONDITIONS
 What is your evaluation
 of the level of general
 business activity? 24.5 55.6 19.9 -4.7
 COMPANY BUSINESS
 INDICATORS
 New orders 29.8 45.1 25.2 -4.6
 Shipments 21.7 53.5 24.7 3.0
 Unfilled orders 17.1 71.9 9.5 -7.7
 Delivery time 14.4 75.2 10.5 -3.9
 Inventories 29.7 49.5 20.8 -8.9
 Prices paid 11.3 76.7 9.7 -1.7
 Prices received 13.1 82.1 4.0 -9.1
 Number of employees 20.2 68.0 11.8 -8.5
 Average employee
 workweek 16.8 68.0 12.4 -4.4
 Capital expenditures --- --- --- ---
 Indicator Six Months from now vs. October
 Decr. No Incr. Diffusion
 Change Index
 GENERAL BUSINESS
 CONDITIONS
 What is your evaluation
 of the level of general
 business activity? 4.8 27.9 65.8 60.9
 COMPANY BUSINESS
 INDICATORS
 New orders 7.7 27.6 64.7 57.0
 Shipments 6.2 34.2 59.6 53.4
 Unfilled orders 6.2 60.2 32.1 25.9
 Delivery time 12.2 71.6 14.4 2.3
 Inventories 26.5 53.4 19.5 -7.0
 Prices paid 1.7 46.5 49.9 48.2
 Prices received 3.8 61.8 34.5 30.7
 Number of employees 15.0 55.0 30.0 15.0
 Average employee
 workweek 3.6 67.5 23.0 19.5
 Capital expenditures 7.7 46.8 33.1 25.4
 Notes:
 1. Items may not add up to 100 percent because of omission by respondents.
 2. All data seasonally adjusted.
 3. Diffusion indexes represent the percentage of respondents indicating an increase minus the percentage indicating a decrease.
 /delval/
 -0- 10/15/92
 /CONTACT: Robert McCarthy of the Federal Reserve Bank of Philadelphia, 215-574-6112/ CO: Federal Reserve Bank of Philadelphia ST: Pennsylvania IN: FIN


SU: ECO

CC-JS -- PH004 -- 0292 10/15/92 10:00 EDT
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Date:Oct 15, 1992
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