The Richmond Federal Reserve Bank stated that the pace of manufacturing activity slowed somewhat in March. The composite index of general business conditions declined from 6 in February to 3 in March, indicating slight growth over the past two months. The new year began with a pretty steep contraction in January, with the index measuring -12, so the data for February and March suggest some degree of improvement, albeit with manufacturers in the region reporting slow growth.

One factor that could explain the deceleration in sentiment was the net decline in new orders in the Fed district. Sales growth continues to be very weak, with zero or positive measures in the new orders index just three times since May 2012. After sales declined sharply in January, they were unchanged in February, and the index stood at -4 in March. While the survey does not discuss it, it would be interesting to know how the across-the-board spending cuts (or “sequestration”) have impacted these results, especially with Virginia being one of the top states impacted.

With declining new orders, there were also falling measures for the backlog of orders and capacity utilization. Shipments data, though, continued to expand modestly, but at a somewhat slower pace. The index for shipments decreased from 10 to 8 for the month, and this was consistent with the modest growth in the average employee workweek. Moreover, unlike several other regional surveys, hiring appears to have picked up a little in the Richmond area, with the employment index up from 8 to 9. It had been negative in January. (continue reading…)

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 Richmond Federal Reserve Bank said that manufacturing activity in its district expanded for the second straight month, albeit at a slower rate. The composite index of general business conditions declined from 9 in December to 5 in December. Even with the lower number, the key takeaway is the region continues to grow modestly, recovering from the period from June to October when the index was negative for four of the five months. Therefore, there are improvements even as it is clear that the economy is not growing as strongly as we might like.

New orders continued to grow, with its index edging slightly lower from 11 to 10. Meanwhile, the pace of shipments slowed from 11 to 6, and employment turned negative (from 3 to -3). Sluggish hiring growth has been a consistent finding among all of the regional Fed surveys.

This is largely a reaction to anxieties from the fiscal cliff and concerns about its impact on economic growth in 2013. Nonetheless, the Richmond Fed respondents continue to be cautiously optimistic about growth in new orders, shipments, and capital spending over the course of the next 6 months. Each of these figures were less positive than in the previous month, however, reflecting some diminishment in sentiment. Employment and the average workweek are expected to remain sluggish, with the latter anticipated to be contracting.

Pricing pressures were mostly unchanged in December, with the average price paid for raw materials up 2.01 percent at the annual rate. This is not far from the 1.99 percent reported in November. The forward-looking measure anticipates these costs to go up 2.54 percent over the course of the next 6 months, indicating some expectated acceleration.

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

The Richmond Federal Reserve Bank said that manufacturing activity contracted in June. This follows similar softness found in many other regions. In May the region had seen some easing, with the general business composite index declining from 14 in April to 4 in May, and now we see it fell further in June to -3, suggesting that more respondents were negative in their assessments.

Many of the subcomponents of this index were also declining in net terms. Shipments, new orders, capacity utilization, and the average workweek all turned negative this month, reflecting recent weaknesses in the economic environment. Net hiring remains positive, but job creation is growing at a slower rate. The employment index eased from 16 to 8.

I suspect that hiring remains positive because manufacturers continue to be cautiously optimistic about future activity, compelling them to look for additional workers.  Indeed, the forward-looking business assessment index rose from 30 to 33 for the month. This suggests that respondents in the region were slightly more positive about growth in the second half of this year, and the various measures of productive activity seem to back this up. For example, the net percentage of those taking the survey expecting higher levels of new orders remained at 30 percent.

Pricing pressures continue to lessen. Manufacturers are currently reporting price increases for raw materials of 1.4 percent at the annual rate. This is nearly half of what it was just two month ago. At the same time, prices for final goods have also fallen, with prices up just 0.5 percent on an annualized basis in June.

Chad Moutray is chief economist, National Association of Manufacturers.

Manufacturers in the Richmond Federal Reserve Bank region were slightly less optimistic in their most recent assessment of current business activity.  While the manufacturing indicators still suggest expansion overall, the composite index dipped from 20 in February to 7 in March. This easing was across-the-board, with the net levels of shipments, new orders, capacity utilization and employment for the month. This suggests moderate growth among manufacturers in the region, as the pace of activity was more subdued than in February.

The longer-term outlook remains more upbeat. Shipments, new orders, capacity utilization and capital expenditures are all expected to grow strongly, with employment also higher. The pace of job growth over the next six months slowed from its February reading, with the index for the number of employees falling from 32 to 10.

Prices for raw materials are expected to continue to accelerate, albeit at a moderate rate. Manufacturers report that prices increased 2.5 percent (at the annual rate) in March, with an anticipation of 2.8 percent growth over the coming months. At the same time, the prices received for their products are expected to increase by 1.6 percent.

Meanwhile, the Conference Board reported that consumers were slightly more pessimistic, with the Consumer Confidence Index down from 71.6 in February to 70.2 in March. Here, an increased perception about the current economic environment was outweighed by concerns about the future climate. It is important to not make too much of this decline, as the longer-term trend remains a positive one. Consumer confidence in March is substantially higher than its levels in the fall; for instance, the index stood at 40.9 in October.

These types of indices tend to move with gasoline prices. Indeed, consumer expectations for inflation rose significantly in the month, from 5.5 percent in February to 6.3 percent in March. This suggests that higher energy costs are a factor in the slightly decline for the index. Nonetheless, these factors do not seem to be impacting spending decisions. Buying intentions for autos, homes and appliances all rose for the month. This is an interesting finding, and one that we will continue to watch.

Chad Moutray is chief economist, National Association of Manufacturers.

The government reported that the U.S. economy grew by 2.8 percent in the fourth quarter of 2011, with manufacturers playing an integral role. Consumers and businesses replenishing their inventories were the largest contributors of real GDP for the quarter. In many ways, this number was not a surprise: other indicators also suggested an uptick in manufacturing activity in the months of November and December. Manufacturers are cautiously optimistic about future production, and the rebound is welcome news.

Yet, the GDP numbers also bring to mind challenges that might dampen growth in the coming months. It is unlikely, for instance, that we will see the same lift from inventories in the first quarter, and consumers have dipped into their savings to increase their purchases. At some point, this level of spending might ease so that consumers might pay off some of these debts. In addition, it is clear that the government sector will be a drag on growth for the foreseeable future – of which we were reminded when the Department of Defense announced budget cuts last week. Most pressing, though, is the constant reminder of Europe’s ills and the challenges that slowing global growth might have on our exports. Fitch Ratings downgraded several European nations’ credit ratings on Friday, following the lead of Standard & Poor’s from a few weeks ago.

These worries aside, most of the recent domestic economic indicators have been positive. Durable goods orders, for example, rose 3 percent in December, with strength in nondefense capital goods. This mirrors much-improved production, employment and investment data from the Kansas City and Richmond Federal Reserve Banks (and for that matter, in most of the recent regional) surveys. The National Association of Business Economics (NABE), in its latest Industry Survey, observes these improvements, with more economists upgrading their assessments for growth this year. Sixty-five percent of respondents to the NABE survey expect for real GDP to grow at least by 2 percent in 2012. Similarly, the Chicago Federal Reserve Bank’s National Activity Index indicates that the risk of a recession seems to be lessening.

These growth estimates are in line with those from the Federal Reserve Board, which estimates real GDP growing between 2.2 and 2.7 percent this year. The Fed also expects the unemployment rate to remain elevated, improving slowly to a range of 8.2 to 8.5 percent in 2012 and to 6.7 to 7.6 percent by 2014. The Federal Open Market Committee, even as it cites improvements in the domestic economy, remains worried about high unemployment, a still-weak housing market and uncertainties related to European sovereign debt. It stated last week that it now plans to keep interest rates at “exceptionally low” levels through late 2014 – an extension from its earlier intentions of doing so through mid-2013. With these moves, the Fed hopes that lower long-term rates spur more borrowing, both by homeowners and businesses.

This week, we will receive more data about production and employment, which will hopefully show continued growth in manufacturing in January. The Institute for Supply Management’s well-cited index of manufacturing activity will come out on Wednesday, and it is expected to be somewhat higher. On Thursday, new productivity data will be released, with manufacturing output per worker expected to continue to show strong growth. Finally, the Bureau of Labor Statistics will unveil new employment data on Friday, which should show increased hiring among manufacturers in conjunction with recently increased production.

Chad Moutray is chief economist, National Association of Manufacturers.

The Richmond Federal Reserve Bank reported that manufacturing activity was much-improved, with the composite index up from 3 in December to 12 in January. This is the highest level since April, and a sign that the region is entering the new year on a stronger footing. As with other regions (especially on the East coast), this reflects a turnaround from the contractions experienced from July to October.

Looking at its various components, the rate of growth for new orders rose. The index grew from 7 to 14 for the month. A similar trend was observed for shipments and capital expenditure plans. Also, after contracting last month, manufacturing in the Richmond region plan to start hiring again, with the index going from -4 to 4.

Moreover, the prospects for growth are positive for 2012, with high levels of optimism across the board. In that respect, it mirrors other comparable surveys which show both a rebound in activity and positive prospects for the new year.

Chad Moutray is chief economist, National Association of Manufacturers.

Earlier today, the Richmond Federal Reserve Bank reported an uptick in manufacturing activity, with its index of current conditions rising from -6 in May to 3 in June.

Since it is a positive number, this represents growth in the Mid-Atlantic region, albeit at a slow pace. The improvement from the previous month was due to increases in new orders, shipments, and capacity utilization; however, some of these figures remain in negative territory. The indices for employment and hours worked fell somewhat, with wages moving up a little.

In addition, pricing pressures moderated from the previous month, but they are still rising at a 4.82 percent annual rate for raw materials. This is down from 6.12 percent in May, with the decline reflecting lower energy costs more than likely. The index for finished goods inventories went from 12 to 23.

Respondents remain optimistic about the next six months, with the index of new orders rising from 40 to 46. This reflects an increase from previous surveys, with similar positive sentiments on expected shipments, employment, and capital spending. Overall, these results show a modest improvement in manufacturing conditions in the Mid-Atlantic region, with businesses positive about increased output in the second half of 2011, suggesting that the industry is beginning to rebound from its more recent weaknesses.

Chad Moutray is chief economist, National Association of Manufacturers.