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December 2008 Business Outlook Survey

Conditions in the region's manufacturing sector continued to deteriorate this month, according to firms polled for the December Business Outlook Survey. All of the survey's broad indicators remained negative this month and at relatively low levels. Firms reported declines in input prices and the prices for their own manufactured goods this month. Consistent with the weakness in current activity, most of the survey's indicators of future activity slid further into negative territory, suggesting that the region's manufacturing executives expect continued declines over the next six months.

Indicators Show Continued Declines

The survey's broadest measure of manufacturing conditions, the diffusion index of current activity, improved from -39.3 in November to -32.9 this month. The index, which fell a dramatic 41 points in October, has remained near its current low reading for the past three months (see Chart). Evidence of continued weakness was also seen in the other broad indicators. The survey's new orders index remained at a low negative reading, although it increased six points, to -25.2.

The survey's shipments index declined almost 10 points, to its lowest reading since February 2001. Indexes for unfilled orders and delivery times remained significantly negative this month and edged slightly lower. The current employment index fell for the third consecutive month, decreasing four points, to its lowest reading since September 1982. The percentage of firms reporting a decrease in employment (42 percent) was greater than the percentage reporting an increase (13 percent). The average workweek index fell notably, declining 12 points.

Prices Continue to Decline

Consistent with overall weakness, price pressures eased again this month. Forty-two percent of the firms reported paying lower prices for inputs; only 9 percent of the firms reported paying higher prices. The prices paid index fell three points, following a 38-point decline in November. The index has now fallen a dramatic 109 points over the past five months. Forty-three percent of firms reported lower prices for their own manufactured goods (compared to 27 percent in November); 6 percent reported higher prices. The prices received index dropped 22 points, to its lowest reading since the survey began in 1968.

Firms are also expecting prices to decline over the next six months. Both the future prices paid and the future prices received indexes remained negative for the second consecutive month, falling 17 points and six points, respectively, to their lowest readings on record.

Six-Month Indicators Deteriorate

Area manufacturers' expectations for future conditions deteriorated further this month. The future general activity index decreased from -10.4, to -14.5 this month (see Chart). The index for future new orders declined three points; the future shipments index increased 12 points but remained negative. On balance, firms expect decreases in employment over the next six months: The future employment index fell five points and was negative for the third consecutive month. The capital spending index dipped 13 points -- its third consecutive negative reading -- suggesting a deterioration in the outlook for future growth.

In this month's special question, firms were asked about their expectations for changes in various categories of input and labor costs for the upcoming year (see the Special Question). The largest annual increase is expected to be for health benefits (6 percent), followed by wages (1.6 percent), and nonhealth benefits (1.2 percent). Regarding nonlabor costs, all of the categories of expense were expected to decline in 2009: raw materials (-3.0 percent), intermediate goods (-0.8 percent), and energy (-0.4 percent). The dispersion of forecasts was the greatest for energy and other raw material costs and the least for total wage costs (nearly all of the forecasts for wages were within the category of 0 to 5 percent increase). For every category of costs the expected rate of change was lower than in the three previous survey years (in December of each year, when the survey question was asked).

Summary

According to respondents to the December survey, manufacturing in the region experienced continued declines this month. Indicators for activity, new orders, shipments, and employment were all substantially negative this month. Firms also reported lower prices for inputs and for their own manufactured products in December. Indicators for future business conditions fell again, suggesting that the region's manufacturing executives expect continued declines during the first half of next year.

Special Question (December 2008)

What percentage change in costs do you expect for the following categories in 2009?
 
Energy
Other Raw Materials
Intermediate Goods
Wages
Health Benefits
Nonhealth Benefits
Increase > 10%
7.3%
2.4%
0.0%
0.0%
15.8%
2.4%
Increase of 7.5-10%
3.7%
2.4%
5.0%
0.0%
23.2%
0.0%
Increase of 5-7.5%
3.7%
2.4%
4.9%
0.0%
18.5%
2.4%
Increase of 2.5-5%
14.6%
8.5%
7.3%
35.4%
15.9%
17.7%
Increase of < 2.5%
6.1%
11.0%
12.2%
24.4%
4.9%
19.5%
Stay at current levels
17.1%
12.2%
31.7%
32.9%
14.6%
50.0%
Decline of < 2.5%
11.0%
14.6%
12.2%
0.0%
0.0%
1.2%
Decline of 2.5-5%
11.0%
8.5%
12.2%
3.7%
0.0%
2.4%
Decline of 5-7.5%
6.1%
11.0%
6.1%
0.0%
1.2%
1.2%
Decline of 7.5-10%
3.7%
6.1%
3.7%
0.0%
1.2%
1.2%
Decline of > 10%
9.8%
15.8%
1.2%
0.0%
0.0%
1.2%
Average
-0.4%
-3.0%
-0.8%
1.6%
6.0%
1.2%
Previous estimates for:
2008 Avg.
4.9%
3.8%
2.8%
3.1%
7.2%
2.4%
2007 Avg.
4.5%
4.1%
2.5%
3.4%
8.1%
3.6%
2006 Avg.
8.4%
5.6%
4.2%
2.7%
9.6%
3.1%

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December 2008 PDF

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Questions?

Questions about the Business Outlook Survey and its historical data can be addressed to Mike Trebing. E-mail