The Mid-Atlantic region's manufacturing sector continued to show improvement in January, according to the Business Outlook Survey from the Philadelphia Federal Reserve.

Indices for general activity, new orders, and shipments all remained positive for January, although each fell back from revised readings in December. The survey's broadest measure of manufacturing conditions, the diffusion index of current activity, decreased from a revised reading of 22.5 in December to 15.2 this month. The index has remained positive for five consecutive months. The current new orders index, which has remained positive for six consecutive months, decreased 5 points. The current shipments index fell 4 points, and the current inventory index, although still negative, increased 4 points, to its highest reading in 26 months.

The current employment index increased 2 points, to its highest reading since February 2008. The workweek index fell back 2 points but has now been positive for three consecutive months.

Respondents to the survey have been reporting higher costs for inputs in recent months. The prices paid index, which showed an increase of 14 points last month, fell back 3 points. More than one-third of firms reported higher prices paid, while less than 1% reported lower prices paid. Most, however, reported near-steady prices for their own manufactured goods. The largest percentage, 85%, reported no change in the prices of their manufactured goods.

The future general activity index remained positive for the 13th consecutive month and increased notably from a revised reading of 35.9 in December to 43.3 in January. Indices for future new orders and shipments also improved, increasing 12 points and 6 points, respectively. For the ninth consecutive month, the percentage of firms expecting employment to increase over the next six months (28%) exceeded the percentage expecting declines (14%). Firms also forecast increases in inventories, unfilled orders, and delivery times.

Firms were asked to characterize demand for their products over the past three months. Nearly 35% indicated that demand had increased modestly over the last three months, and 7% indicated significant increases in demand. Only 15% indicated modest declines, while 7% reported significant decreases. When asked to compare current demand with what was expected three months ago, 26% of firms indicated that demand was greater than expected, 17% less. Firms were nearly evenly divided in their responses to a question about whether their forecast for the first half was more certain or less certain than six months ago.

The full set of revised historical data is available at philadelphiafed.org

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