Nonmanufacturing Activity Picked Up in the Northeast in December

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The Federal Reserve Bank of Philadelphia already has released its business outlook survey for the manufacturing sector. Now it has also released its nonmanufacturing survey. The report shows that business activity in the region continued to grow at a modest pace.

The index for general activity at the firm level increased to 18.1 in December from 16.4 in November. And for what will come ahead, the Philly Fed’s forecasts are signaling that the outlook for the next six months remains positive.

Nearly 40% of the nonmanufacturing firms reported higher activity, and just 22% of firms reported lower activity.

Indicators for new orders and for sales and revenues were mixed in December. The new orders index fell eight points to 8.7, which the Philly Fed pointed out as being its lowest reading since July. The sales/revenues index rose 11 points to 26.7 in December, and they showed the breakdown having about 48% of the firms having gains versus just 38% in November.

Firms also perceived increases in regional economic activity. The business activity index for the region rose by six points to 25.3.

According to the Philly Fed, nonmanufacturing firms reported an expansion in employment, and they reported higher prices paid and prices received. These points were broken out as follows:

  • Firms continued to report overall increases in full-time employment, although the pace of job growth in the region may have declined from November.
  • The full-time employment index remained positive but fell 14 points to 8.0.
  • The share of firms reporting increases (22 percent) exceeded the share reporting decreases (14 percent).
    The part-time employment index rose 2 points to 12.7.
  • The workweek index also rose.
  • The wage and benefit cost index fell to 33.6 in December from 43.4 in November.
  • The prices received index rose 12 points to 11.8 in December, almost matching the historical average of 11.6.
    Almost 18 percent of the firms reported higher prices for their own goods and services this month, versus 8 percent in November.
  • The prices paid index rose by 4 points to 27.5, higher than the historical average of 20.2 for three consecutive months.
  • 62 percent of firms reported steady input prices in December, with 28 percent of the firms were paying higher prices — and almost no firms reported paying lower prices.

The outlook for 2018 remains positive, with the regional Fed’s report noting:

The respondents to this month’s survey remained optimistic about activity during the first half of 2018. The diffusion index for future activity at the individual firm level increased 3 points to 45.6 (see Chart 1). More than 56 percent of the firms anticipated higher activity over the next six months, compared with 11 percent that anticipated a decline. The future regional activity index also rose, from 31.3 in November to 39.2 in December. Nonetheless, both future indexes remained below their historical averages (49.2 for the firm-level index and 43.5 for the regional index).

While this is not a national report, it is the region that kicks off the other Fed’s regional reports and is often used as a barometer of how the nation as a whole is doing on a monthly basis. Using the regional trend for a national bias is accurate more often than it is not, but sometimes using the correlation can be wrong.