Tag: manufacturing activity

Richmond Fed: Manufacturing Activity Expanding at a Modest Pace

The Richmond Federal Reserve Bank said that manufacturing activity grew at a modest pace, expanding for the fourth straight month. The composite index of general business conditions edged slightly higher, up from 4 in June to 7 in July. Note that historical data in the Richmond Fed survey were revised in this edition to reflect new seasonal adjustments.

Despite the improved top-line figure, the underlying data were largely mixed. The biggest positive was hiring, with the employment index up from 4 to 13. This was the fastest pace of hiring growth since December, which was encouraging. Wage (up from 12 to 16) and shipments (up from 2 to 3) were also higher. Yet, new orders (5) expanded at the same pace, and both capacity utilization (down from 7 to 4) and the average workweek (down from 5 to 3) decelerated somewhat for the month.

Still, manufacturers in the Richmond Fed’s district were mostly upbeat about the next six months, with forward-looking measures increasing in July for many indicators. For instance, new orders (up from 27 to 34), shipments (up from 24 to 36), capacity utilization (up from 18 to 29), employment (up from 12 to 19) and capital expenditures (up from 18 to 19) were all higher, with each suggesting relatively healthy paces of growth.

Inflationary pressures have picked up a bit for the month, but remain mostly in-check. Manufacturers in the region said that prices paid for raw materials grew 1.99 percent at the annual rate in July, up from 1.47 percent in June. Looking ahead six months, respondents expect input costs to increase an annualized 1.89 percent, up only marginally from 1.84 percent the month before.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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Monday Economic Report – July 21, 2014

This is the summary for this week’s Monday Economic Report: 

With more and more data starting to trickle in for June, we are seeing some definite trends taking shape. One positive is that the manufacturing sector continues to expand, suggesting that the rebound from winter-related softness earlier in the year has mostly continued. Manufacturers also tend to be mostly upbeat about the second half of this year—a sign of optimism that is encouraging. Yet, there were also indicators suggesting that the pace of activity slowed somewhat in June, most notably in the industrial production, housing starts and retail sales numbers that were released last week.

Indeed, manufacturing output in June increased at its slowest rate since January, with relatively mixed news overall. Nondurable goods production edged higher, up 0.1 percent, but output from nondurable goods manufacturers declined by 0.3 percent. Monthly declines in production in such sectors as apparel, machinery and motor vehicles nearly offset output gains for aircraft, furniture, metals and plastics, and rubber products. Longer-term trends remain reassuring, even if they still leave room for improvement. Over the past 12 months, manufacturing production has increased 3.5 percent, a decent figure overall and progress from the much slower pace of just 1.5 percent in January. Durable goods output has risen by a healthy 5.5 percent year-over-year, whereas nondurable goods activity was a less robust 1.5 percent in the past year.

Housing starts in June were also weaker than expected, down from an annualized 985,000 in May to 893,000 in June. Starts were lower for both single-family and multifamily units. There have been suggestions that rain might have attributed to the weaker construction activity, with storms preventing some units from breaking ground. Yet, single-family starts have struggled for some time, down 4.3 percent over the past 12 months. On the positive side, single-family housing permits rose for the second straight month, up from 615,000 to 631,000 at the annual rate for the month. This could suggest stronger growth in the housing market in the coming months for single-family homes. Along those lines, homebuilder confidence increased to its highest point since January, with better expectations for sales over the next six months.

Meanwhile, surveys out last week reported multiyear highs in the pace of manufacturing activity. New orders and shipments were up sharply in surveys from the New York and Philadelphia Federal Reserve Banks. Hiring also picked up in both regions, and raw material costs remained elevated relative to prior months. More importantly, manufacturers in each survey said they were optimistic that sales, output, employment and capital spending would increase over the next six months. In fact, the Philadelphia Federal Reserve report found that 56.1 percent of its respondents anticipated higher new orders, with 60.4 percent predicting increased shipment levels. In addition, the Manufacturers Alliance for Productivity and Innovation (MAPI) reported that the business outlook rose for the sixth consecutive quarter on accelerated sales domestically and abroad. Shipments and capital spending were also anticipated to grow strongly moving forward.

On the consumer front, Americans continue to be cautious in their purchase decisions. Retail spending increased 0.2 percent in June. This was the slowest pace since January, and it was below expectations. Reduced auto sales contributed to this lower figure. Despite the slower activity levels in June, the year-over-year pace continues to grow at decent levels, up 4.3 percent over the past 12 months. Preliminary consumer confidence data also indicate some nagging anxieties in the economy, according to the University of Michigan and Thomson Reuters. The Consumer Sentiment Index unexpectedly decreased from 82.5 in June to 81.3 in July, and consumer attitudes have not changed much since December. Much of July’s decrease stemmed from weaker expectations about the future economy. However, higher gasoline prices might have also been a factor. Indeed, the producer price index increased in June largely on higher energy costs.

This week, we will get additional insights on the health of manufacturing worldwide. Markit will release preliminary purchasing managers’ index reports for China, Japan, the Eurozone and the United States for July. We will be looking for continued progress in Asia and the United States and we hope a reversing of the easing in activity in Europe. The Kansas City and Richmond Federal Reserve Banks will also report on their latest manufacturing surveys. Beyond these releases, the Bureau of Economic Analysis will publish real GDP data by industry for the first quarter; given the 2.9 percent drop in real GDP during the first quarter, we would anticipate minimal contributions to growth from the manufacturing sector. Other highlights include the latest data on consumer prices, durable goods orders and existing and new home sales.

Chad Moutray is the chief economist, National Association of Manufacturers. 

manufacturing production growth - jul2014

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MAPI: Manufacturing Activity Continued to Improve in the Second Quarter

The Manufacturers Alliance for Productivity and Innovation (MAPI) said that its Composite Business Outlook Index rose from 69 in March to 71 in June. Indeed, this was the sixth consecutive quarterly gain in the manufacturing outlook, up from 55 in December 2012. Index readings over 50 indicate expansion, and as such, these data suggest mostly positive trends in the sector. The pace of new orders (up from 71 to 78) and export sales (up from 60 to 67) accelerated, and profit margins edged higher (up from 66 to 70).

In terms of investment, manufacturers completing the MAPI survey said that they were increasing their capital spending levels both in the U.S. (up from 59 to 67) and abroad (up from 59 to 64). At the same time, the rate of research and development spending slowed slightly in this survey (down from 69 to 67), albeit a still-healthy paces.

Yet, the forward-looking indicators provided mixed news. Prospective shipments within the U.S. eased slightly (down from 88 to 87) but are still expected to grow relatively strongly. Similarly, export shipments also decelerated somewhat (down from 81 to 76). Overall, the data indicate that there is still room for improvement. The percentage of respondent companies that were operating at above 85 percent capacity dropped from 35.7 percent to 30.0 percent.

Overall, though, these data support the notion that manufacturing activity continues to improve, mirroring similar findings from other indicators. As reported last month, MAPI has a generally upbeat outlook for this year. They predict that manufacturing production will increase by 3.2 percent and 4.0 percent in 2014 and 2015, respectively, suggesting accelerating growth from the 2.6 percent pace of 2013.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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Philly Fed: Manufacturing Activity Expanded at Fastest Pace in Over 3 Years

The Federal Reserve Bank of Philadelphia said that manufacturing activity expanded at its fastest pace in over three years (March 2011). The Business Outlook Survey’s composite index of general business activity increased from 17.8 in June to 23.9 in July. The shift stemmed largely from a drop in the percentage of manufacturers in the Philly Fed district who said that conditions had worsened, down from 18.6 percent to 8.9 percent. This helped to push the overall diffusion index higher in July, with roughly one-third of the respondents noting improvements for the month in overall conditions.

The pace of new orders (up from 16.8 to 34.2) and shipments (up from 15.5 to 34.2) were both up significantly in this report. Hiring (up from 11.9 to 12.2) and the average employee workweek (up from 7.3 to 12.5) continued to move in the right direction. One downside was elevated costs for raw materials, with nearly 36 percent of those taking the survey saying that input costs were increased in the month.

Over the course of the next six months, manufacturers in Philly Fed district were overwhelmingly upbeat about future activity. In fact, 56.1 percent of survey respondents said that they anticipate increased sales, and 60.4 percent predict higher shipment levels. Moreover, even as the indices edged a bit lower in July, roughly one-third of those completing the survey said that they planned to add workers and over one-quarter were going to increase their capital expenditures in the next six months.

In a couple special questions, 38.6 percent of manufacturing respondents noted increased exports over the past year, with just 7.0 percent saying that they had moderate decreases. The region exported mainly intermediate products (39.6 percent), with final business products (24.5 percent), capital goods (18.9 percent) and final consumer products (11.3 percent) also important components.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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Empire State Survey Shows Manufacturing Growth at a Four-Year High in July

The Empire State Manufacturing Survey from the New York Federal Reserve Bank increased to its highest level in July since April 2010. The composite index of general business conditions rose from 19.3 in June to 25.6 in July, suggesting that manufacturing activity expanded strongly in the month. The jump in the headline figure was due largely to a drop in the percentage of respondents saying that conditions were worse, down from 21.1 percent in June to 15.0 percent in July. In contrast, 40.6 percent of manufacturers taking the survey said that they felt business was improving, up just slightly from the 40.4 percent who said the same thing the month before.

The underlying data were mostly positive, particularly for shipments (up from 14.2 to 23.6) and employment (up from 10.8 to 17.1). New orders also edged somewhat higher, up from 18.4 to 18.8, mostly from a drop in those saying that sales were lower. Yet, the data also had a couple weaknesses, with the average workweek (down from 9.7 to 2.3) easing a bit and pricing pressures (up from 17.2 to 25.0) picking up.

Looking ahead six months, manufacturers in the New York Fed district continued to be mostly optimistic, albeit with less enthusiasm than the month before. The forward-looking composite index decreased from 39.8 to 28.5, but the data still suggest relatively healthy gains moving forward. Growth rates were slower for a number of indicators, including new orders (down from 44.5 to 25.6), shipments (down from 45.2 to 24.6), hiring (down from 20.4 to 17.1) and capital spending (down from 11.8 to 9.1).

In all, 38.2 percent of respondents anticipate sales to be higher six months from now, with 49.2 percent expanding no changes. Other highlights include a slight increase in technology spending plans (up from 3.2 to 10.2), and reduced levels for inventories (down from 6.5 to -4.6) and the average workweek (down from zero to -4.6).

Chad Moutray is the chief economist, National Association of Manufacturers. 

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Kansas City Fed: Manufacturing Activity Expanded at a Slower Rate in June

The Kansas City Federal Reserve Bank said that manufacturing activity expanded at a slower rate in June; nonetheless, growth was positive for the sixth straight month. The composite index of general business activity fell from 10 in May to 6 in June. Several indicators eased for the month, including production (down from 14 to 2), shipments (down from 5 to 2), new orders (down from 11 to 8) and the average workweek (down from 14 to 7). To illustrate this, 34 percent of respondents said that their production had increased In June, down from 40 percent in May.

The largest negative in the report was exports (down from 6 to -11), with 16 percent of those taking the survey suggesting that their international sales had fallen in June. In addition, hiring (down from 10 to 1) slowed to a crawl, with 23 percent suggesting that they had added employees but 17 percent noting declines.

Still, there continue to be some encouraging signs for the months ahead, albeit with somewhat weaker sentiment than earlier data. The forward-looking composite index has edged down from 21 in April to 13 in May to 12 in June. Yet, at least 35 percent of survey respondents anticipate sales, shipments, and output to be higher six months from now, and 28 percent plan to add workers. Capital spending (up from 19 to 23) was expected to pick up slightly. Pricing pressures declined a bit for the month, but remain elevated with 48 percent of survey-takers anticipating increased raw material costs ahead.

Several of the sample comments noted workforce challenges. As one manufacturer put it, “It is not so much a question of short supply of workers, but rather a question of workers who are reliable and possess a strong work ethic.” Others noted the limited availability of possible employees with the right skills in their community and challenges with competition for workers in terms of compensation.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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New Durable Goods Orders Fell by One Percent in May

The Census Bureau said that new durable goods orders decline 1.0 percent in May, reflecting weaker-than-anticipated growth for the sector. It followed rebounds from February to April from winter-related softness in both December and January. As a result, new durable goods orders have risen 3.6 percent year-to-date through the first five months. Hopefully, May’s decrease represents something of a pause in what otherwise has been a decent rebound in the spring months.

Looking specifically at the May figures, much of the decline stemmed from decreased sales in nondefense aircraft (down 4.0 percent for the month). This was enough to offset increased new orders in motor vehicles and parts (up 2.1 percent) and defense aircraft (up 5.9 percent). Excluding transportation, new durable goods orders would have fallen 0.1 percent.

This suggests broader weaknesses in the durable goods sector beyond aircraft, with mixed data overall. Increased new orders in computers and related products (up 9.5 percent), primary metals (up 1.9 percent), and fabricated metal products (up 0.3 percent) were essentially counterbalanced by declines in communications equipment (down 10.6 percent), electrical equipment and appliances (down 3.1 percent), and machinery (down 0.3 percent).

Meanwhile, durable goods shipments increased 0.3 percent in May, an improvement from being unchanged in April. Year-to-date growth in shipments have risen 2.3 percent. In May, the largest gains in shipments were observed in motor vehicles and parts (up 2.1 percent), primary metals (up 1.6 percent), fabricated metal products (up 0.6 percent), and machinery (up 0.6 percent).

In contrast, durable goods shipments were lower for nondefense aircraft and parts (down 5.9 percent), computers and electronic products (down 1.2 percent), defense aircraft and parts (down 1.0 percent), and electrical equipment and appliances (down 0.1 percent).

Chad Moutray is the chief economist, National Association of Manufacturers. 

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Chinese Manufacturers Report Positive Growth in Activity for the First Time in 2014

The HSBC Flash China Manufacturing Purchasing Managers’ Index (PMI) expanded for the first time in 2014, with the index increasing from 49.4 in May to 50.8 in June. The May report had shown some signs of stabilization; therefore, the June data extended upon those improvements. For instance, new orders (up from 50.2 to 51.8) and output (up from 50.3 to 51.8) grew stronger for the month, with both measures at their fastest paces since December. Still, the Chinese economy continues to have its challenges with decelerated activity. Export sales (down from 52.7 to 50.6) were slower, and hiring (up from 47.3 to 48.7) remained negative despite some progress in June. Overall, though, these findings support the view that China’s stimulus measures have helped to support a rebound.

Several of the other reports out today were also encouraging for manufacturers. For example, the Markit/JMMA Flash Japan Manufacturing PMI also returned to expansion in June, up from 49.9 to 51.1. This was the first positive reading for manufacturing activity in three months, and it was a sign that sentiment has begun to recover from an increase in taxes that went into effect on April 1st. The survey results reflected positive growth for new orders (up from 49.4 to 52.0) and production (up from 49.2 to 51.8). Yet, much like China, exports (up from 48.2 to 49.0) and employment (down from 51.0 to 49.8) were weak spots, with both contracting for the month. In addition, activity levels remain well below where they were just a few months ago, suggesting that there remains more room for improvement.

Meanwhile, closer to home, the Markit Flash U.S. Manufacturing PMI increased from 56.4 to 57.5, its fastest pace in over four years. Healthy gains in new orders (up from 58.2 to 61.7) and output (up from 59.6 to 61.0) helped to fuel this strength, with each figure at their highest level since the PMI report began in October 2009. Employment (up from 53.5 to 53.8) also picked up for the month, indicating modest hiring growth. On the other hand, exports (down from 51.5 to 50.9) slowed slightly. These data suggest that U.S. manufacturing activity has rebounded in the second quarter from winter-related softness in the first quarter, much as we have seen in other indicators, as well.

In other news, the Markit Flash Eurozone Manufacturing PMI declined from 52.5 to 51.9, falling for the second straight month. Slower growth on the continent has weakened each of the key measures in this report, including new orders (down from 52.9 to 52.0), output (down from 54.7 to 52.8), exports (down from 52.8 to 52.7), and employment (down from 50.8 to 50.4). The good news is that each of these indicators continues to expand, but just more slowly than we might prefer. This, of course, is why the European Central Bank has taken actions in recent weeks to help stimulate the European economy, and why further actions might be forthcoming down the line.

The Markit Flash Germany PMI increased very slightly from 52.3 to 52.4, reflecting a modest expansion in manufacturing activity in the country. Yet, output (down from 55.3 to 52.9) fell to its lowest level since September. On a positive note, the German economy is still growing, unlike France’s. The Markit Flash France PMI declined from 50.3 to 47.1, with activity down across-the-board.

Flash data give us an advance estimate of manufacturing activity incorporating “approximately 85% of the usual monthly survey replies,” with the final PMI data for the month released in early June. This month marks the premier of preliminary data for Japan.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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Philly Fed: Manufacturing Activity Expanded Strongly in June

The Federal Reserve Bank of Philadelphia said that manufacturing activity expanded strongly in June, extending the spring rebound in the region. The Business Outlook Survey’s composite index of general business activity increased from 15.4 in May to 17.8 in June, averaging 16.6 over the past three months. The underlying numbers were mostly positive. There were faster rates of growth for new orders (up from 10.5 to 16.8), shipments (up from 14.2 to 15.5), hiring (up from 7.8 to 11.9), and the average workweek (up from 2.9 to 7.3). Over 39 percent of respondents said that new orders were higher in the month, up from 34.8 percent in the prior survey.

Pricing pressures remain elevated, with raw material costs continuing to edge higher. The index for prices paid rose from 23.0 to 35.0, with 36.2 percent of those taking the survey suggesting that input costs had increased in June. Just over 60 percent said that raw material prices were unchanged, with just 1.2 percent indicating a decline. Moving forward six months, 44.5 percent anticipate their costs to rise, with none expecting them to fall. For the most part, this mirrors the recent producer price index data which has shown core inflation picking up somewhat.

Looking toward the second half of 2014, manufacturers in the Philly Fed district were mostly upbeat. In a special question on production expectations, 73.9 percent of respondents said that they anticipate increased production in the coming months, with nearly 48 percent predicting output growth of more than 4 percent. This corresponds with 59.7 percent who predict increased new orders over the next 6 months.

Employment growth is also expected to increase, but with some mixed news overall. The good news is that 29.0 percent say that they plan to hire additional workers in a special question. Yet, that figure is slightly dwarfed by those who do not indent to hire but plan to increase output through productivity gains (27.5 percent) or more hours for existing staff (11.6 percent). This suggests that firms remain slightly hesitant about adding to their workforce, even as we have seen progress of late on the employment front.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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Empire State Survey: Stronger Growth in Manufacturing Sustained in June

The Empire State Manufacturing Survey from the New York Federal Reserve Bank continued to reflect strong growth in June. The composite index of general business conditions remained quite elevated, up from 19.0 in May to 19.3 in June, essentially sustaining the sharp increase seen the month before. In all, just over 40 percent of survey respondents said that business conditions were better in June, with 21.1 percent suggesting that they had worsened. Similar to last month, this was the fastest pace for the composite index since June 2010.

A nice jump in sales helped to push manufacturing sentiment higher for the month, with the index for new orders rising from 10.4 in May to 18.4 in June. The percentage of those taking the survey who reported increasing new orders rose from 31.9 percent to 40.7 percent. The length of the average workweek also widened (up from 2.2 to 9.7). Still, there was some easing in other components, including shipments (down from 17.4 to 14.2) and employment (down from 20.9 to 10.8). The latter suggests a slight deceleration in hiring, but still a decent pace.

Looking ahead six months, manufacturers in the New York Fed district continued to be mostly optimistic. While the forward-looking composite index eased slightly for the month (down from 44.0 to 39.8), this figure still indicates strong growth over the next six months, and other figures suggest accelerating levels of activity. For instance, the pace of new orders (up from 36.7 to 44.5), shipments (up from 33.8 to 45.2), all hiring (up from 17.6 to 20.4) are all expected to pick up in the coming months. Indeed, 55.4 percent anticipate increased new orders over the next six months, which is positive news.

On the down side, the average employee workweek is anticipated to be unchanged (up from -3.3 to zero) moving forward, and the pace of expected capital expenditures (down from 19.8 to 11.8) and technology spending (down from 4.4 to 3.2) both eased this month. Over one-quarter of respondents still plan to increase capital spending in the months ahead, but these figures suggest some cautiousness on the investment side, which we would like to see change.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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