Manufacturers in the Richmond Federal Reserve Bank region were slightly less optimistic in their most recent assessment of current business activity. While the manufacturing indicators still suggest expansion overall, the composite index dipped from 20 in February to 7 in March. This easing was across-the-board, with the net levels of shipments, new orders, capacity utilization and employment for the month. This suggests moderate growth among manufacturers in the region, as the pace of activity was more subdued than in February.
The longer-term outlook remains more upbeat. Shipments, new orders, capacity utilization and capital expenditures are all expected to grow strongly, with employment also higher. The pace of job growth over the next six months slowed from its February reading, with the index for the number of employees falling from 32 to 10.
Prices for raw materials are expected to continue to accelerate, albeit at a moderate rate. Manufacturers report that prices increased 2.5 percent (at the annual rate) in March, with an anticipation of 2.8 percent growth over the coming months. At the same time, the prices received for their products are expected to increase by 1.6 percent.
Meanwhile, the Conference Board reported that consumers were slightly more pessimistic, with the Consumer Confidence Index down from 71.6 in February to 70.2 in March. Here, an increased perception about the current economic environment was outweighed by concerns about the future climate. It is important to not make too much of this decline, as the longer-term trend remains a positive one. Consumer confidence in March is substantially higher than its levels in the fall; for instance, the index stood at 40.9 in October.
These types of indices tend to move with gasoline prices. Indeed, consumer expectations for inflation rose significantly in the month, from 5.5 percent in February to 6.3 percent in March. This suggests that higher energy costs are a factor in the slightly decline for the index. Nonetheless, these factors do not seem to be impacting spending decisions. Buying intentions for autos, homes and appliances all rose for the month. This is an interesting finding, and one that we will continue to watch.
Chad Moutray is chief economist, National Association of Manufacturers.
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