Manufacturing Growth Slows in Philadelphia
In October, Philadelphia’s regional manufacturing activity expanded at a slower pace, with the index for general business activity falling from 37.8 to 20.9. This month, 41.2% of firms reported increases in activity, while 20.3% cited decreases. New order growth also slowed, falling from 29.2 to 4.3, while the shipments index declined from 27.7 to 15.3. Meanwhile, the employment index stepped down 2.7 points to 9.1, and the average employee workweek dropped 10.5 points to 7.5. The prices paid index decreased from 48.6 to 43.2, while the prices received index rose from 31.3 to 40.1. As has been the case for many months, the prices received index remained lower than the prices paid index, but that gap is starting to close, indicating that manufacturers have gained increased pricing power amid stronger demand and have to absorb a smaller portion of higher costs paid.
Looking ahead, most indicators showing expectations for growth weakened but remained positive in October. After falling 20.7 points in September, expectations for future business activity declined 19.9 points to 33.0 in October. The loss came primarily from a jump in the proportion of firms expecting a decrease in activity (18.4%), while the share anticipating an increase (51.4%) also fell. The future new orders index declined from 62.3 to 37.0, and the future shipments index fell from 61.1 to 35.2, signaling a slower anticipated growth in new orders and shipments over the next six months. Meanwhile, the capital expenditures index stepped down from 37.1 to 34.9. The future prices paid and prices received indices both decreased, moving from 71.3 to 62.9 and from 72.3 to 62.1, respectively, but remained above their long-run averages. Additionally, the future employment index declined from 50.6 to 30.1.
In October, firms were asked about their capital spending plans for next year. Overall, 52.2% expect higher total capital spending, while no firms anticipate a decrease. Further, 50.0% of firms plan to spend more on noncomputer equipment, while 39.1% expect increased spending on both software and computer and related hardware. At the same time, 34.8% intend to spend more on structures, and 27.3% plan to increase energy-saving investments. Overall, firms plan to spend more than last year, when 36.0% expected to increase spending while 19.0% planned to decrease capital expenditures.
