The Richmond Federal Reserve Bank said that manufacturing activity stalled in September, not building on the rebound that was observed in August. The composite index of general business activity has seen large swings in the past couple months, up from -11 in July to 14 in August and now down to zero in September. To some extent, the easing in data in September was a reaction to the large gain that was observed in August; after all, a zero reading suggests that activity was unchanged from the previous month. In other words, to put a positive spin on things, the rebound of August was sustained.
Yet, even with that context, the Richmond Fed’s survey was a disappointing one, continuing the volatility that has been pervasive in this report all year. Many of the key measures were lower in September, suggesting that weaknesses in the manufacturing sector continue to persist in the region. For instance, the index for new orders eased from 16 in August to 5 in September, indicating a slower pace of sales growth. Meanwhile, shipments (down from 17 to -1), employment (down from 6 to -6), and the average workweek (down from 8 to -4) turned negative again. Thus, manufacturers are reporting a soft marketplace in the current economic environment.
Looking ahead, though, manufacturing leaders in the Richmond Fed district continue to be mostly optimistic. The index for expected new orders six months from now has risen from 24 in July to 33 in August to 35 in September. Similar gains were seen in the future indicators for shipments, capacity utilization, and capital expenditures. The pace of hiring is also forecast to grow, albeit less robustly than other measures of activity, with the average workweek only increasing modestly.
Pricing pressures, which had decelerated for much of this year, picked up this month. The prices paid for raw materials increased 2.44 percent at the annual rate in September, up from 1.60 in July and 0.99 in August. Looking ahead six months, respondents predicted input price growth of 2.26 percent, up from 2.15 percent last month. This is just above the 2 percent goal set by the Federal Reserve Board, but for the most part, it indicates that manufacturers expect modest inflation ahead which continues to be only marginally higher than the acceptable range.
Chad Moutray is the chief economist, National Association of Manufacturers.
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