Chicago and Richmond Fed Survey’s Show Slowed Manufacturing Growth

By May 28, 2013Economy

The Chicago Federal Reserve Banks’ Midwest Manufacturing Index (MMI) declined from 96.4 in March to 95.9 in April, down 0.5 percent for the month. This ended five straight months of increasing manufacturing activity in the Chicago Fed district. Even with April’s decrease, production is still up 0.8 percent in the first four months of 2013 and 3.3 percent over the past 12 months.

The auto and steel sectors led the index lower, with both seeing their output fall 0.9 percent in the month of April. As such, this represents a pullback in production for the motor vehicle sector, which has had year-over-year gains of 5.8 percent over the past year and has helped to propel the overall economy regionally and nationally. The machinery sector also had lower production, down 0.3 percent. The lone riser in the MMI was output in the “resource” sector, up 0.1 percent. The Chicago Fed’s resource sector definition includes food, wood products, paper, chemicals, and nonmetallic mineral products. In particular, the April resource sector numbers were boosted by higher food and chemical manufacturing activity.

The Richmond Federal Reserve Bank’s survey of manufacturers found that activity declined for the second month in a row. The composite index of general business conditions improved from -6 in April to -2 in May, but the negative reading was still at contractionary levels, even as the pace of the decline eased somewhat for the month. While there was some progress reported in January and February, it is hard to escape the fact that the Richmond Fed district’s main measure of manufacturing activity has seen a contraction in three of the past five months.

The May survey reflected lower levels of activity mostly across-the-board, with the decline in new orders accelerating from -8 in April to -10 in May. With fewer sales, it is not surprising that many of the other components were also down. Respondents indicated net decreases in capacity utilization, employment, and the average workweek. Interestingly, the measure for shipments turned positive, up from -9 in April to +8 in May, but the ability for these shipments to continue to increase in the coming months will depend on what happens with new orders.

On that note, manufacturers in the Richmond Fed district remain cautiously optimistic about the next six months. Even with many of the main measures of current activity lower, those completing this survey expect higher levels of shipments and new orders on net looking forward. Hiring and capital spending plans are also positive, but are anticipated to grow much more modestly.

In terms of inflation, raw material prices continue to decelerate. The prices paid for inputs in May increased 1.00 percent on average, down from 1.27 percent in April and 2.54 percent in January. With that said, they are expected to grow by 1.91 percent six months from now, suggesting some modest (but still acceptable) growth ahead.

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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