According to the Federal Reserve Bank of Philadelphia, manufacturing activity in its region picked up in December. This month’s Manufacturing Business Outlook Survey showed that the index for current manufacturing activity surged higher to 21.5 in December from a reading of 7.6 in November. The indexes for general activity, shipments and employment were all positive in December, and all also posted gains from their readings last month.

Thursday’s release of the so-called Philly Fed reading showed that manufacturers were much more optimistic about growth over the next six months. Also rising were the indexes for future employment and capital spending.

Thursday’s report was much stronger than expected. That should be of little surprise, with the Federal Reserve now looking for three rate hikes in 2017 rather than just two. Bloomberg was calling for the general index to be just 10.0 in December — so a 21.5 reading was twice as high. Bloomberg’s Econoday range was 6.0 to 12.5.

With most readings on the up, the Philly Fed report said:

Nearly 34 percent of the firms reported increases in activity this month, compared with 24 percent last month. The general activity index has remained positive for five consecutive months, and the activity index reading was the highest since November 2014. The current new orders and shipments indexes remained positive, reflecting continued growth. The shipments index increased 3 points, while the new orders index fell 5 points. Both the delivery times and unfilled orders indexes were positive for the second consecutive month, suggesting longer delivery times and an increase in unfilled orders.

Additional data were shown as follows:

Firms reported an increase in manufacturing employment and work hours this month. Firms reported increases in the prices paid for inputs.

The percentage of firms reporting an increase in employment (17 percent) exceeded the percentage reporting a decrease (11 percent).

The current employment index improved 9 points, its first positive reading in 12 months.

Firms also reported an increase in work hours as the average workweek index increased 2 points and has now been positive for two consecutive months.

The prices paid index increased 2 points following a 21 point increase last month.

Thirty percent of the firms reported higher input prices this month.

Most firms (66 percent), however, reported that input prices were unchanged.

With respect to prices received for firms’ own manufactured goods, the percentage of firms reporting higher prices (16 percent) remained higher than the percentage reporting lower prices (10 percent), but the index for current prices received fell 10 points.

This month, manufacturing firms were asked about expected changes in costs in 2017 and how these expected changes compare with the actual cost changes in 2016. One such issue was health care costs projected to rise:

The responses indicate that the largest average annual increase is expected to be for health benefits (8 percent).

Both wages and nonhealth benefits are expected to rise more than 2 percent.

The costs of raw materials and energy are expected to increase by an average of 2.7 percent and 1.1 percent, respectively.

Firms were also asked how the expected cost increases for 2017 will compare with this year’s cost changes. For all categories of expenses, the firms forecast, on balance, increases greater than in 2016.

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