The Richmond Federal Reserve Bank noted contracting levels of manufacturing activity in its January survey, reversing the positive figures seen in November and December. Since the end of May 2012, its composite index of general business activity has been negative 5 out of 8 months, reflecting the slower pace of growth in the second half of the year and continuing weaknesses. This overall index decreased from 5 in December to -12 in January, its lowest level since July.

The more-downbeat assessment mirrors similar findings last week from the New York and Philadelphia Federal Reserve Banks. As we saw in those surveys, much of the data was negative across-the-board. For instance, the index for new orders dropped from 10 to -17, indicating a steep decline in average sales. This was undoubtedly behind much of the other negative sentiment. There were falling levels on average for shipments, capacity utilization, employment, and the workweek, as well.

Notwithstanding these declines, manufacturers in the Richmond region continue to be cautiously optimistic about the next six months. This is true even with the many headwinds that we face right now, including persistent uncertainties. There is modest growth expected for shipments, new orders, and capital spending. With that said, hiring should remain sluggish. Employment levels are expected to be the same, with an index reading of zero, for instance.

At the same time, pricing pressures have accelerated since the last survey. The prices paid for inputs increased 2.54 percent at the annual rate in January, up from 2.01 percent in December and 1.99 percent in November. This faster pace is somewhat different from the conclusion of the most recent producer price data, which found raw material costs easing in December.

Chad Moutray is chief economist, National Association of Manufacturers.

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