The Federal Reserve Bank of Philadelphia has released its August Business Outlook Survey, and the report was a hot one that likely will increase expectations on other Fed readings for the month. The report suggests that manufacturing continues to grow in this district. Please note that this report has a special section asking companies what their actions were around the Affordable Care Act.

The General Business Conditions Index rose to 28.0 in August. That is up from 23.9 in July, and it totally blew out the 20.0 consensus estimate from Bloomberg. In fact, the Bloomberg range was 17.0 to 21.0 for this report.

Thursday’s report showed that the activity index was at its highest since 2011. Still, some things need to be viewed here in context. The Philly Fed said that indicators for new orders, shipments and employment were all positive, but also that they fell from their readings in July. The broad indicators of future activity increased, and this implies that manufacturers are still optimistic about continued growth over the next six months.

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The diffusion index of current general activity increased from a reading of 23.9 in July to 28.0 this month. The new orders index decreased 20 points, while the shipments index decreased 18 points. The current indicators for labor market conditions are telegraphing modest employment expansion, and the employment index remained positive for the 14th consecutive month, even if it was three points lower than in July.

Another takeaway was confirmation that inflation fears were only temporary. The Philly Fed signaled that price pressures were moderate with only about 30% of the firms reporting higher input prices, down from 36% in July. The prices paid index fell almost 10 points from July to its lowest reading in three months. Also, the prices received index fell to 4.2 from 16.8.

One quote was as follows:

While most broad indicators of future growth have been improving, the survey’s future capital spending index has been slipping. Although the index decreased just 1 point this month, its reading, at 17.5, is now the lowest it has been in seven months.

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There was a brief note on the impact of the Affordable Care Act. In special questions this month, firms were asked qualitative questions about the effects of ACA on how companies are making changes to their employment and compensation. The report indicates:

• More than 18% of the firms indicated that the number of workers they employ was lower because of the ACA, while 3% indicated higher levels.
• The same percentage (18%) indicated that the proportion of part-time workers had increased.
• Regarding health insurance benefit coverage, 41% said their coverage was unchanged, but 52% indicated modifications to their offerings.
• Among those modifying their health insurance coverage, higher deductibles (91%), higher worker contributed premiums (88%) and higher out-of-pocket maximums (77%) were the most cited changes.

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