The Richmond Federal Reserve Bank said that manufacturing activity contracted in June. This follows similar softness found in many other regions. In May the region had seen some easing, with the general business composite index declining from 14 in April to 4 in May, and now we see it fell further in June to -3, suggesting that more respondents were negative in their assessments.
Many of the subcomponents of this index were also declining in net terms. Shipments, new orders, capacity utilization, and the average workweek all turned negative this month, reflecting recent weaknesses in the economic environment. Net hiring remains positive, but job creation is growing at a slower rate. The employment index eased from 16 to 8.
I suspect that hiring remains positive because manufacturers continue to be cautiously optimistic about future activity, compelling them to look for additional workers. Indeed, the forward-looking business assessment index rose from 30 to 33 for the month. This suggests that respondents in the region were slightly more positive about growth in the second half of this year, and the various measures of productive activity seem to back this up. For example, the net percentage of those taking the survey expecting higher levels of new orders remained at 30 percent.
Pricing pressures continue to lessen. Manufacturers are currently reporting price increases for raw materials of 1.4 percent at the annual rate. This is nearly half of what it was just two month ago. At the same time, prices for final goods have also fallen, with prices up just 0.5 percent on an annualized basis in June.
Chad Moutray is chief economist, National Association of Manufacturers.