The Richmond Federal Reserve Bank said that weather negatively impacted overall manufacturing activity in February in its district. As such, it mirrored contracting levels seen in the Philadelphia Fed survey and easing noted in recent Dallas and New York Fed reports. The Richmond Fed’s composite index fell sharply from 14 in January to -6 in February. This was the lowest level since July, and it averaged 9 over the previous six months (August to January) during a period when the sector was experiencing overall decent growth rates.
The effects of weather can be seen in a number of the February indices, including new orders (down from 14 to -9), shipments (down from 14 to -6), capacity utilization (down from 11 to -7), and the average workweek (down from 8 to -5). Indeed, the Richmond Fed’s release notes that “manufacturing facilities experienced downtime in February, with some reductions in shipments” due to the recent dismal weather conditions. Hiring also slowed to a halt, with its index down from 6 to zero for the month.
Despite these soft figures, manufacturers continued to be mostly upbeat in February, albeit with a deceleration in sentiment from January. The forward-looking index for new orders declined from 30 to 15. This indicates that sales growth is still anticipated to grow over the next six months for most manufacturers in the region, but at a slower pace than predicted the month before. Similar figures were seen for shipments, capacity, the workweek and capital spending. On a positive note, hiring is still expected to grow modestly, with its pace unchanged (12) in February.
Meanwhile, pricing pressures eased for the month but were expected to pick up in the months ahead. Prices paid for raw materials increased 1.19 percent at the annual rate in February, down from 1.53 percent in December and 1.32 percent in January. Yet, over the next six months, raw material costs are anticipated to grow an annualized 2.25 percent, up from 1.64 percent predicted last month.
Chad Moutray is the chief economist, National Association of Manufacturers.