PHILADELPHIA, PA—The Federal Reserve Bank of Philadelphia says its Manufacturing Business Outlook Survey indicated continued modest growth in the region's manufacturing sector in February. Although the current activity index fell for the third consecutive month, it remained positive, and the employment indicator increased from its reading last month. The survey's future activity index also fell but continues to reflect general optimism about manufacturing growth in the region over the next six months.

Each month, the Philadelphia Fed surveys regional businesses about their expectations for economic activity in the coming month and their actual activity in the prior month.

Indicators Reflect Modest Growth

The diffusion index for current general activity fell slightly, from a reading of 6.3 in January to 5.2 this month. Half of the responding firms indicated there was no change in activity from January to February. The current new orders index fell three points, but the shipments and unfilled orders indexes turned positive and rose 15 and 16 points, respectively. The index for delivery times increased 6 points but remained negative, while the index for inventories rose 16 points.

The survey's indicators for current labor market conditions suggest a slight improvement this month, as the employment index increased 6 points and returned to a positive reading. The percentage of firms reporting increases in employment (21 percent) exceeded the percentage reporting decreases (17 percent). The workweek index was negative with almost no change from last month.

Price Indexes Remain Subdued

Fifteen percent of the firms reported higher prices paid this month, 5 percentage points below the number that reported higher prices paid last month, and the prices paid index fell 5 points. The prices received index remained unchanged at close to zero. Eighty percent of the firms reported no change in prices received, and the percentage of firms reporting higher prices received was equivalent to the percentage reporting lower prices received (10 percent).

Firms Expect Growth to Continue

The diffusion index for general future activity fell from a reading of 50.9 in January to 29.7 in February. Forty-two percent of the firms expect activity to grow six months from now. The survey's indicators of future growth for new orders, shipments, unfilled orders, delivery times, and inventories declined, but future indexes for the number of employees and average workweek showed slight improvement. Thirty-seven percent of the firms are expecting growth in their employment levels over the next six months, compared with 33 percent last month, and the future employment index increased 3 points.

Firms Expect to Increase Production to Meet Rising Demand

In Special Questions, firms were asked to characterize current demand and production of their manufactured products and make comparisons to the fourth quarter of last year (excluding seasonal effects). Most firms (55 percent) reported an increase in underlying demand, while 20 percent reported a decrease. Fifty-four percent of the firms anticipate increasing production, and 33 percent expect to cut production.

Summary

Responses to the February Manufacturing Business Outlook Survey suggest continued modest expansion of the region's manufacturing sector. Firms reported that overall activity continued to rise, and the survey's future activity indexes remain positive, suggesting continued optimism about manufacturing growth. Firms also remain optimistic about employment increases over the next six months.