The Federal Reserve Bank of Philadelphia has reported that manufacturing activity in its region has continued to grow but at a subdued pace in December. Its December Manufacturing Business Outlook Survey reported that the index for current general activity decreased to 9.4 in December from 12.9 in November.

The consensus estimate from Dow Jones was for the so-called Philly Fed general activity index to rise to 15.0. While this is subdued growth, the survey’s future indexes indicate that its respondents are still expecting to see growth over the next six months.

The survey’s broad indicators were positive, but their movements were mixed this month. This was seen as the general activity and shipments indicators fell while new orders and employment increased.

While the drop in the current general activity index was still positive, it stood out that the Philly Fed called it the lowest reading since August of 2016. More detailed data were shown as follows:

• Over 26 percent of the manufacturers reported increases in overall activity.
• 17 percent of the manufacturers reported decreases in overall activity.
• The new orders index rose 5 points to 14.5 but remains notably lower than its average reading for the year.
• The current shipments index fell by 12 points to 10.0 (the lowest reading in 27 months).
• Both the unfilled orders and delivery times indexes were positive this month, suggesting higher unfilled orders and slower delivery times.

Each month comes with a “special questions” notation. Surveyed people were asked to offer expectations in various input and labor costs for the coming year.

In general, firms continued to report overall higher employment. The report said:

Over 24 percent of the responding firms reported increases in employment this month, while 6 percent of the firms reported decreases in employment. The current employment index remained positive and edged 2 points higher to 18.3. The current workweek index fell 6 points to 0.5, its lowest reading in 26 months.

Also worth noting is that the pace of the price gains was positive, but it was lower than had been reported in the middle of 2018. The report said:

The survey’s diffusion indexes for prices remained positive, suggesting continued increases in firms’ input prices and the prices for their own manufactured goods. On the cost side, 42 percent of the firms reported increases in the prices paid for inputs. The prices paid index edged down 1 point and remains 25 points below its peak in July. The prices received index increased 4 points to 26.2, its highest reading in four months, but 10 points below its peak in May.

While wages are expected to grow again in 2019, firms are expecting that the highest cost increase expectations for 2019 would be health benefits. December’s report said:

Wages are expected to increase by an average of 2.8 percent, while health benefits are expected to rise 4.5 percent, and nonhealth benefits are expected to rise 1.9 percent. The costs of raw materials and intermediate goods are expected to increase next year by an average of 3.2 percent and 2.4 percent, respectively. Energy prices are expected to increase only 0.4 percent.

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