The New York Federal Reserve Bank said that manufacturing activity expanded in August, and it has been positive in 6 out of the past 7 months. With that said, demand and production eased in August, weakening manufacturers’ perceptions about the current economic environment. The Empire State Manufacturing Survey’s composite index declined marginally from 9.5 in July to 8.2 in August.
The reduced sentiment was mainly seen in the sales and production measures. For instance, the index of shipments dropped from 9.0 to 1.5, with the percentage of respondents saying that their shipments had declined in the month rising from 22.2 percent to 29.6 percent. About 31 percent of those taking the survey said that their shipments had increased in August, or roughly the same who said as much in July. The story was similar for new orders, with that index dropping from 3.8 to 0.3. As such, it suggests that sales have stalled, which could impact future levels of activity.
Nonetheless, the employment data were more upbeat. The index for the number of employees rose from 3.3 to 10.8, and the percentage suggesting that employment was higher rose from 15.2 percent to 22.9 percent. Likewise, the average employee workweek shifted from a net decline (-7.6) to a modest gain (4.8). Still, roughly two-thirds of respondents said that their hiring levels were unchanged.
Looking ahead, manufacturers continue to be cautiously optimistic. Approximately 45 percent of manufacturers in the New York Fed district expect new orders and shipments to increase over the course of the next six months, with about 15 percent anticipating declines. Inventories are predicted to decline, and pricing pressures should accelerate, according to survey participants.
Capital spending and hiring are also expected to increase, but only very modestly at best. In a series of special questions, respondents said that they estimate capital investments to grow one percent this year, with employment levels flat. This differs somewhat from the earlier questions on hiring, which were more mixed. In those questions, manufacturers anticipate a small pickup in employment on net, but with an average workweek that was reduced.
Chad Moutray is the chief economist, National Association of Manufacturers.