The Richmond Federal Reserve Bank said that growth in manufacturing activity slowed in May. The composite index of manufacturing activity is now 4, down from 14 April. As such, it follows similar findings from the Philadelphia Fed released last week showing weaknesses in the current environment. Unlike the Philly survey, however, manufacturing activity remains positive, but the pace of growth has eased.
In the Richmond survey, the slowdown is reflected in several of the components. Manufacturers are seeing shipments, new orders and capacity utilization shift from growth in April to essentially being flat in May. For example, the index for new orders declined from 13 to 1 for the month. With new orders being a proxy for future activity, this is a concern, at least for the next month or so.
With that said, the outlook for the next six months remains positive. Various measures of manufacturing activity remain solidly positive, suggesting strong growth expectations for the second half of 2012. The forward-looking new orders index rose from 29 to 30. Similarly, shipments and capital spending numbers were strong.
It is perhaps because of these upbeat expectations that employment variables did not dip in May. The number of employees and average workweek indices both moved higher for the month. As such, manufacturers in the Richmond region have evidently stepped up hiring.
Pricing pressures continue to moderate. Manufacturers are currently reporting price increases for raw materials of 2.3 percent on average at the annual rate, down from 2.71 percent last month. The average price increase for final goods, though, was 0.98 percent.
Chad Moutray is chief economist, National Association of Manufacturers.
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