The Federal Reserve Bank of Philadelphia’s Business Outlook Survey contracted again in May, declining for the first time since February. The composite index of general business conditions declined from 1.3 in April to -5.2 in May. The index was brought lower by reductions in new orders, shipments, and employment. Specifically, the new orders index dropped from -1.0 to -7.9, with over one-third of respondents saying that their sales had declined in the past month.

The indices looking at current activity declined, indicating some sluggishness this month. For instance, the shipments index shifted from modest growth in April (9.1) to a modest contraction in May (-8.5). The percentage of respondents saying that their shipments had declined from the previous month increased from 18.8 percent in April to 32.4 percent in May. The average workweek, unfilled orders, and delivery times were all negative, as well.

Unlike the Empire State Manufacturing Survey from the New York Fed, which was released yesterday, manufacturers in the Philly region were hiring fewer workers in May. The index for employment declined from -6.8 to -8.7. The two surveys did agree, though, on the forward-looking hiring measures. The index of expected employment six months from now rose from 8.2 to 10.0, suggesting that manufacturers plan to increase their hiring in the coming months moderately.

Indeed, manufacturers in the Philly Fed region remain cautiously optimistic about the future. The general business activity measure for six months from now rose from 19.5 to 32.3. Almost 45 percent of those completing the survey anticipate better economic conditions in the coming months, with 36.3 expecting them to be the same. Manufacturers are also planning for increased sales, shipments, and capital spending in the second half of 2013.

Regarding inventories, 58.1 percent of those answering a special question on the topic said that their stockpiles were “about right for current economic conditions.” Just over one-quarter of them expect to decrease their inventories in the second quarter, and in fact, the forward-looking index for inventories reflects a slight contraction.

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

The New York Federal Reserve Bank found that manufacturing new orders and business conditions were lower in May. The Empire State Manufacturing Survey’s composite index of general business activity declined from 3.1 in April to -1.4 in May. This is the first contracting level for the index’s main measure since January, ending three months of growth. Still, more than anything, this statistic mostly observed how manufacturing activity has mostly stagnated in the past month or so. Indeed, 48.5 percent of survey respondents said that conditions had not changed, with those saying that they were better or worse nearly offsetting one another at 25.0 percent and 26.5 percent, respectively.

The subcomponents of the index tend to back this view up. The pace of new orders declined modestly on net, with its index down from 2.2 to -1.2. Other contracting figures included shipments (-0.02), unfilled orders (-6.8), delivery times (-3.4), inventories (-8.0), and the average workweek (-1.1). Pricing pressures eased somewhat for the month (down from 28.4 to 20.5), but still suggest decent growth. Nearly two-thirds of survey respondents, though, suggest that raw material prices had not changed in the past month.

Even as the average workweek was lower, it appears that manufacturers continue to hire, with its index down just modestly from 6.8 to 5.7. While 71.6 percent of respondents said that their employment levels had not changed in the past month, 17.1 percent noted increases, and 11.4 percent reported declines. Still, the net growth in hiring is perhaps surprising given the sluggishness of employment growth nationally and the other weaknesses in the Empire State survey.

Continued hiring could perhaps be explained by cautious optimism in the forward-looking measures. Those manufacturers in the New York Fed’s survey who complete this survey remain positive – albeit less so than last month – about increases in new orders, shipments, employment, and capital spending plans. One-quarter of respondents plan to hire more workers, over one-third expect to increase their capital investments, and nearly 40 percent anticipate higher sales.

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

The Richmond Federal Reserve Bank said that manufacturing activity, which had contracted sharply in January, improved in February. The composite index of general business conditions rose from -12 in January to 6 in February. Indeed, there were signals of progress – as well as some continued weaknesses – in many of the key indicators. For instance, the shipments index increased from -11 to 10, and capacity utilization jumped from -18 to 11.

At the same time, new orders were unchanged, with the index up from -17 to zero. The fact that they were not declining, though, should be taken as a good sign. On the employment front, hiring turned positive for the first time since July, but the average workweek has decreased for three straight months. This suggests that employers are starting to think about bringing on more workers, even as the workload continues to lag behind.

To the extent that hiring is taking place then, it must be based on improving expectations about the future, and the forward-looking measure for hiring rose from being unchanged last month to a decent increase this month. Other indicators also reflected cautious optimism over the next six months, including increased index values for new orders, shipments, capacity utilization, and wages. The anticipated pace of capital spending, however, eased somewhat in February, but was still positive with modest growth ahead.

In terms of pricing pressures, respondents noted a deceleration in inflation from last month, but they expect for raw material prices to pick up the pace in the months ahead. The prices paid for input increased 2.04 percent at the annual rate in February, down from 2.54 percent in January. Looking ahead six months, manufacturers in the Richmond Fed District expect for prices to rise 2.72 percent, up from 1.97 percent last month.

Overall, this study finds a more optimistic manufacturing community in the Richmond region. To be fair, though, it is important to note that these gains in February are from a sharp decline in January. It will be interesting to see how these opinions shift in the coming month, particularly if the across-the-board spending cuts go into effect on March 1 as planned. Virginia – and for that matter, the entire metropolitan DC area – will experience some of the greatest impacts, as noted in our study released last year.

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

The Federal Reserve Bank of Richmond reported that manufacturers in its region were more optimistic about the current business environment. The composite general business index rose to 20 in February, up from 3 in December and 12 in January.

Improvements were seen across-the-board in a number of production indicators. For instance, the index for new orders rose from 14 to 21 for the month, with similar increases seen for shipments, capacity utilization, the number of employees and the average workweek. Wages and raw material inventories continued to expand, but at a slower rate than reported in January.

Looking at pricing trends, respondents said that the prices paid for raw materials rose at an annual rate of 2.25 percent, down from their 2.53 percent gain cited in January but above the 1.55 stated in December. With that said, manufacturers expect modest inflation in the months ahead, with the expected increases for raw materials averaging 1.58 percent, at the annual rate, over the next six months. This would suggest some easing from prior months.

Manufacturing activity in the coming months is also expected to be strong. While some of the measures declined slightly from January, they continue to show an upbeat mood. Higher levels of shipments, new orders, employment and capital expenditures are anticipated over the next six months. Overall, these figures show a region which has rebounded nicely from the weaknesses that it experienced in mid-2011.

Meanwhile, the Conference Board reported that consumers are also more positive about their current economic situation. Their Consumer Confidence Index rose from 61.5 in January to 70.8 in February. This is a sizable improvement from the 45.2 registered in August.  This was the highest level since last February.

Americans, in general, are more positive about both the present and future economy, with the indices for both up. As this measure often turns on pocketbook issues, the respondents cited improvements in the labor market as one of the reasons. Still, nearly 39 percent of those taking the survey said that jobs were “hard to get” (although this is down from almost 50 percent who said the same thing just five months ago).

Consumer intentions for future purchases were mixed. There were a slightly higher percentage of individuals saying the planned to purchase new autos, but a modest decline for those suggesting a home or appliance purchase.

Chad Moutray is chief economist, National Association of Manufacturers.

The Census Bureau reported higher housing starts figures in January, up to 699,000 from a revised 689,000 in December. This increase stemmed from multi-family home construction, which rose from 176,000 to 191,000. Single-family new starts fell from 513,000 to 508,000 for the month, and the number of completions fell sharply. On the bright side, housing permits for single family residences were up slightly — a sign of progress moving forward.

Note that many of the data points for 2011 were revised upward. Overall starts in November, for instance, topped 700,000 for the first time since October 2008. These figures clearly show an upward trajectory, with total housing starts up nearly 10 percent year-over-year. Regionally, gains in the South and West were somewhat offset by less new residential construction in the Northeast and Midwest. For January, though, only the Midwest had declines.

This news mirrors similar data released yesterday by the National Association of Home Builders (NAHB). Its housing market index rose from 25 to 29. This represents a significant improvement in builder confidence in the past few months as the index was 14 in September. Single-family sales rose, and expectations are higher for the next six months.

NAHB Chief Economist David Crowe trumpets the positive trend, but he also cautions us to keep the numbers in perspective. “… it is important to remember that the HMI is still very low, and several factors continue to constrain the market. Foreclosures are still competing with new home sales, and many builders are seeing appraisals come in at less than the cost of construction. Additionally, prospective home buyers are finding it difficult to qualify for a mortgage.”

In other news today, the Philadelphia Federal Reserve Bank reports continued improvements in manufacturing activity in its region. The index of general business conditions rose from 7.3 in January to 10.2 in February. This is the fifth consecutive month of expanding production, with higher measures for new orders, shipments and the average workweek. The rate of job growth eased, though, and inventories were shrinking. (The latter is a positive sign of the increased activity.) Pricing pressures accelerated.

Looking ahead six months, the respondents remained very positive about future activity, but less so than last month. The expectations index of general activity fell from 49.0 to 33.3. This coincided with lower values for new orders, shipments and capital spending plans. But, employment measures were stronger, suggesting an increased willingness to hire additional workers in the coming months. I would not overplay the news that this figure declined by too much, however, as it mostly reflects a settling in of the overall improving trend. Only 12.9 percent of those taking the survey expect for activity to decline in the next few months.

Overall, the numbers released today and yesterday highlight a recovering economy, with manufacturing leading the way. Improvements in housing are also a welcome sign, even as the sector remains below its historical averages.

Chad Moutray is chief economist, National Association of Manufacturers.

The Federal Reserve Bank of New York reported that manufacturing activity gained momentum this month. The Empire State Manufacturing Survey’s general business conditions index jumped to 13.5 in January from 8.2 in December. This is the highest point since April and represents a turnaround from the June to October time frame, which noted contracting activity.

The news was generally positive across-the-board, with higher new orders, shipments, inventories and employment. Most importantly, manufacturers’ confidence in additional activity over the next six months also improved, with strong levels of growth expected overall. This includes more hiring and capital spending. Pricing pressures are also anticipated to accelerate.

In a series of special questions, 51 percent of respondents intend to increase employment in the coming months. This is an increase from the 41 percent who said the same in June. Stronger sales growth was the main reason cited. In terms of wages and benefits, 54 percent of manufacturers responding to the survey said that wages would increase by less than 2.5 percent this year. On the other hand, 71 percent said that benefit costs would rise by more than 2.5 percent.

Overall, this report is consistent with other regional and national indicators which show the domestic manufacturing sector picking up steam as we enter the new year. 

Chad Moutray is Chief Economist, National Association of Manufacturers.

Two indices released today provide mixed news on the larger economy, with reduced manufacturing activity in November weighing heavily on both of them.

First, the National Activity Index from the Chicago Federal Reserve Bank dropped from -0.11 in October to -0.37 in November. The largest driver of the decline was the 0.2 percent drop in industrial production which was reported last week. Housing remained a drag on the index despite some improved housing starts figures; whereas, higher employment figures helped to lift it.

Overall, the National Activity Index shows an economy which is growing below its historical trend. The three-month moving average is currently -0.24, which is unchanged from the previous month. Values under -0.70 suggest that the economy might be in a recession. While economic growth has moved away from the recessionary risk zone in recent months, it is also clear that weaknesses remain.

Second, the Conference Board’s Leading Economic Index rose 0.5 percent in November, lower than the 0.9 percent growth rate observed in October. As with the Chicago release, manufacturing indicators provided a drag to the index, including a reduced average workweek for production workers and fewer manufacturing new orders for consumer goods and materials. Nondefense capital goods spending, on the other hand, provided a slight boost.

There were a number of bright spots, though. Higher building permits and increased consumer expectations were both real positives for this forward-looking index. In addition, expansionary monetary policies are providing ample liquidity to the markets, with both monetary aggregates and the interest rate spread contributing greatly to this figure.

The Coincident Index, which looks at the current economic environment, rose 0.1 percent. For this index, higher nonfarm payrolls, personal income and manufacturing and trade sales were offset by lower industrial production numbers.

Nonetheless, despite the drag on these indices provided by the manufacturing sector, the real story here is one of continued growth moving into 2012. There were several positives observed in these data, with the drop in industrial production having a large sway in moving both the National Activity Index and the Leading Economic Index lower.

Yet, the larger picture for the next few months should be more optimistic than these numbers might portray. Improvements in housing, employment and consumer confidence are welcome signs, and most estimates of manufacturing production for 2012 show moderate growth of around 3 percent.