The Richmond Federal Reserve Bank said that manufacturing activity rebounded in August from the declines observed in July. The composite index of general business activity had a surprisingly strong contraction in July (-11), but the bounce back in August was equally convincing (14). As such, the August reading was the fastest pace since March 2011. After notable weaknesses over the course of the past year, the increased sentiment in August was entirely welcome and mirror others surveys which have shown progress, particularly from the spring months.
The various measures of activity were higher across-the-board, and mostly followed the trend of the composite index. For the most part, they show that July’s data were a bit of an aberration. For instance, the index of new orders had jumped from 9 in June to -15 in July to 16 in August. Shipments were also up strongly. Employment growth shifted from being stalled to a slight uptick in hiring, with its index up from zero in both June and July to 6 in August.
Looking ahead six months, manufacturers responding to the Richmond Fed’s survey were mostly upbeat. The index of expected new orders increased from 24 in July to 33 in August, with anticipated shipments up from 24 to 36. The forward-looking data on capacity utilization, employment, and capital spending were all higher, highlighting the cautious optimism ahead. With that said, hiring continues to grow at a slower pace than other measures, up from 5 to 9.
Pricing pressures have decelerated in August. The prices paid for raw materials increased 0.99 percent at the annual rate in August, down from 1.60 percent in July. That is not much different than the 1.00 percent reading of May, reflecting the benefits to manufacturers of lower overall inflation. Core producer prices, for instance, continue to be below 2 percent, the goal of the Federal Reserve Board, according to the latest data. Nonetheless, respondents to this survey anticipate their input costs to grow by 2.15 percent on average six months from now, a modest pickup in costs, up from 2.06 percent in the last survey.
Chad Moutray is the chief economist, National Association of Manufacturers.
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