The Richmond Federal Reserve Bank found that manufacturing activity in the region softened again in October. The composite index of general business conditions fell from 4 in September to -7 in October. Last month, the improved figures had suggested some progress on the manufacturing front, with the composite index positive after three consecutive months of negative values. That appears to have been short-lived.
New orders, which had turned positive in September with an index reading of 7, returned to negative territory in October (-6). Poor sales numbers have often been the main driver of these types of sentiment surveys in recent months, and the Richmond Fed one is no exception.
In addition to orders, other components in contraction territory include shipments, capacity utilization, and employment. On the latter element, the index for net job hiring has been at -5 for three months straight. Clearly, there is a skittishness to hiring at this point, with weak sales and production reducing the desire to bring on new workers, at least for now.
The forward-looking measures remain more upbeat, but with mixed and often reduced expectations for the next six months. Respondents anticipate strong growth in new orders, shipments, and capacity utilization, with sales growth below what was forecast in September (but still high). This reflects a degree of cautious optimism regarding future activity, and as a result, the index for expected hiring increased slightly. With that said, some anxiety is still present in these numbers, as capital expenditures are now expected to be flat over the next six months.
Pricing pressures have resurfaced, with raw material prices increasing by 3.21 percent at the annual rate in October. This is more than double the 1.42 percent growth in input prices reported in September. Future costs are also higher, with the prices paid for raw materials expected to be up 2.55 percent over the course of the next six months. That is an increase from the 1.33 percent forecast noted last month.
Chad Moutray is chief economist, National Association of Manufacturers.