The New York Federal Reserve Bank said that manufacturing activity declined in November, the first contraction since May. The Empire State Manufacturing Survey’s composite index shifted from very slight growth (1.5) in October to a small net decrease (-2.2) in November. Indeed, overall sentiment has pulled back each month since peaking at 9.5 in July.
The underlying data were lower across-the-board. The index of new orders fell from 7.8 to -5.5. The percentage of respondents suggesting that their sales had increased over the past month declined from 29.6 percent to 22.5 percent, with nearly half of those taking the survey in each month saying that their orders were the same. Shipments (down from 13.1 to -0.5) and the average employee workweek (down from 3.6 to -5.3) followed suit. Meanwhile, net hiring ground to a halt (down from 3.6 to zero), with 73.7 percent of respondents noting no change in employment in November.
Despite the current weaknesses, manufacturers are mostly positive about the next six months, with the forward-looking composite index decreased only barely from 40.8 to 37.5. More importantly, just over half of survey takers anticipate higher new orders and shipments in the coming months, and other data reflect cautious optimism, as well.
The biggest shift was in the expected employment figure, with the index up from 7.2 to 22.4. Nearly one-third of respondents said that they expect additional hiring in the next six months, up from 19.3 percent last month. That would be quite encouraging if it comes to fruition; yet, it is also true that 56.6 percent plan to make no changes in hiring. Expected capital spending was mixed, with overall growth in expenditures easing (down from 15.7 to 9.2) but technology purchases edging higher marginally (up from 12.1 to 13.2).
In terms of pricing pressures, manufacturers said that their prices for raw materials increased by 3.4 percent in 2013. The prices paid is expected to rise to 4.0 percent in 2014.
Chad Moutray is the chief economist, National Association of Manufacturers.
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