It is no secret that the economic numbers have improved over the past 45 to 60 days. Some market watchers point out that the gains are from the election, and others say that the numbers were already improving ahead of the election. What is known now is that the December numbers, which are after the election, of course, are supporting last week’s Federal Open Market Committee (FOMC) rate hike.

Now we have the Federal Reserve Bank of Philadelphia showing that the pace of growth for regional non-manufacturing activity rose in December. This month’s Nonmanufacturing Business Outlook Survey index increased to 30.4 from 15.6 in November. The tagline in the communique was that firms are highly optimistic about growth over the next six months.

What should be considered here is that this is a regional report rather than a national one. Still, the index nearly doubled! The Philly Fed said:

The pace of growth for regional nonmanufacturing activity rose in December, according to the firms responding to this month’s Nonmanufacturing Business Outlook Survey. The index for current firm-level activity rose notably. The indexes for new orders, sales, and employment also increased, but by lesser amounts. Survey respondents continued to report moderate price increases. The respondents were decidedly more optimistic for the first half of 2017 in this survey than they were in the previous survey; the indexes for future general activity at the firm level and in the region both rose sharply.

A general trend would be as follows: Current activity improved, employment expanded, deceleration of price increases at their own firms, higher capital spending and a high level of optimism. Some of these points were shown as follows:

• The index for current activity at the firm level increased from 15.6 in November to 30.4 in December.
• The regional activity index rose 10 points, to 20.9, but remains below its historical average of 22.7.
• The employment indicators showed improvement this month, but most of the respondents reported no change in employment. The diffusion index for full-time employment rose 5 points, to 19.7, and the diffusion index for part-time employment rose 8 points, to 17.0.
• The price indexes suggest a deceleration in price increases for the respondents’ own goods and services and relatively steady conditions for input price inflation. The index for prices received fell 10 points, to 8.0, in December.
• The index for equipment and software spending rose 9 points, to 26.7. The share of firms reporting increased spending on equipment and software was 31 percent, up from 25 percent last month, while the share reporting decreased spending fell from 7 percent to 4 percent.
• The index for physical plant spending also rose 9 points, to 21.0. The share of firms reporting increased spending on physical plant expenditures rose to 25 percent, and the share reporting decreased spending fell to 4 percent.
• The firm-level future activity index rose from 40.4 in November to 65.8 in December. Nearly 72 percent of the respondents expect activity to increase at their firms, while only 6 percent expect activity to decrease. The regional future activity index almost doubled, rising from 34.2 in November to 67.3 in December. Almost 71 percent of the firms expect activity to increase in the region, and only 3 percent expect activity to decrease.

Tuesday’s Philly Fed report is far from a market-moving report. That being said, it is a strong regional report, and the United States is far more nonmanufacturing these days than dependent on manufacturing.

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