Improvements in Richmond Manufacturing Activity and Consumer Confidence

By September 25, 2012Economy

Two data points were released this morning, with both of them showing modest improvements in September. First, the Richmond Federal Reserve Bank reported that manufacturing activity expanded in September. This reflects some progress from the contractions observed in the previous three months, with the composite index of general business conditions up from -9 to 4. Behind this positive development were increased sales, with the new orders index rising from -20 to 7. The growth rate of shipments was also higher.

On the other hand, manufacturers in the region have not increased their hiring to match the better sales figures yet. Overall employment continues to contract, with the index for the number of employees unchanged in September at -5. The average workweek was also lower, with the contraction easing somewhat.

As we have seen in other surveys, raw material prices have picked up a little. The prices paid for inputs were up 1.42 percent, somewhat higher than the 1.32 percent gain seen in August. The longer-term trend reflects significant easing in producer prices, with the latest data showing an uptick. The prices received for final goods, though, grew by just 0.44 percent, suggesting some pricing pressures.

The forward-looking measures improved slightly, with shipments, new orders, and capacity utilization expected to grow strongly six months from now. With that said, the data also reflect some possible tentativeness in that assessment, as the growth rate of hiring and capital expenditures slowed. The expected employment index, for instance, dropped from 8 to 1, indicating almost no change in job growth over the course of the next six months.

Second, the Conference Board said that its Consumer Confidence Index rose from 61.3 in August to 70.3 in September. This suggests that Americans were more optimistic, with the gain larger than expected. Growth in the index stemmed from both consumers’ perceptions about the current economic environment as well as their expectations for the next six months. The largest gains, in fact, were in the latter, with the forward-looking measure up from 71.1 to 83.7. 

This survey tends to react to pocketbook issues, and respondents were more positive about both job prospects and income growth. This translated into improved buying plans for automobiles and appliances, with home purchasing plans slightly lower, according to the survey responses.

The improved assessments for the next six months – both for consumers in the Conference Board survey and manufacturers in the Richmond one – seem to diverge from other reports showing concerns about the fiscal abyss, budget sequestration, slowing global growth, and other anxieties. Certainly, we have shown that nearly 79 percent of manufacturers were worried about political uncertainties and the fiscal abyss in our NAM/IndustryWeek Survey of Manufacturers.

I am still of the view that these uncertainties are hampering economic growth, and the impacts of the fiscal abyss and sequestration are already having real negative impacts on the economy.

Chad Moutray is chief economist, National Association of Manufacturers.

Chad Moutray

Chad Moutray

Chad Moutray is chief economist for the National Association of Manufacturers (NAM) and the Director of the Center for Manufacturing Research for The Manufacturing Institute, where he serves as the NAM’s economic forecaster and spokesperson on economic issues. He frequently comments on current economic conditions for manufacturers through professional presentations and media interviews. He has appeared on Bloomberg, CNBC, C-SPAN, Fox Business and Fox News, among other news outlets.
Chad Moutray

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