The Dallas Federal Reserve Bank noted slight expansions in manufacturing activity in July, building on the progress made in June. With that said, there was a modest easing in sentiment relative to the month before. The composite measure of general business activity declined from 6.5 in June to 4.4 in July. The good news was that it was the second straight month of modest growth, following sharp declines in activity in both April and May.
The trend of positive growth — albeit less so than the month before — carried through to many of the other measures, as well. For instance, the index for new orders decreased from 13.0 to 10.8. This still indicates decent sales growth, with 28.7 percent of respondents saying that orders were higher this month. At the same time, a little over half reported no change in sales. Similar findings were seen in the production, capacity utilization, and capital expenditures indices.
Meanwhile, two key variables noted improvements in July. First, the index for shipments rose from 15.4 to 17.7, with over 29 percent saying that their shipment levels had increased since June. Second, hiring has moved from being stalled to growing moderately, with the employment index accelerating from 0.2 to 9.3 for the month. Given the recent sluggishness in the jobs market, this is a good sign. Yet, the fact tha three-quarters of respondents reported unchanged employment levels suggests that there is still a lot of room for future progress.
Speaking of which, the forward-looking components were mostly optimistic. Manufacturers were cautiously positive about the next 6 months. For example, 40.6 percent expect increased sales and 49.5 percent anticipate higher production in the second half of 2013. In addition, hiring and capital investments were also predicted to grow.
Nonetheless, even with these figures, it is also clear that manufacturers remain somewhat tentative in their views about the coming months. You can definitely see this in the sample comments. For instance, a chemical manufacturer said, “Business for July and August has increased, but it is still too early to know if this is a step increase in business or just a blip.” Others cited uncertainties with the implementation of the Affordable Care Act, other possible regulations, and federal government spending.
Chad Moutray is the chief economist, National Association of Manufacturers.
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