The Chicago Federal Reserve Banks’ Midwest Manufacturing Index (MMI) declined from 96.4 in March to 95.9 in April, down 0.5 percent for the month. This ended five straight months of increasing manufacturing activity in the Chicago Fed district. Even with April’s decrease, production is still up 0.8 percent in the first four months of 2013 and 3.3 percent over the past 12 months.

The auto and steel sectors led the index lower, with both seeing their output fall 0.9 percent in the month of April. As such, this represents a pullback in production for the motor vehicle sector, which has had year-over-year gains of 5.8 percent over the past year and has helped to propel the overall economy regionally and nationally. The machinery sector also had lower production, down 0.3 percent. The lone riser in the MMI was output in the “resource” sector, up 0.1 percent. The Chicago Fed’s resource sector definition includes food, wood products, paper, chemicals, and nonmetallic mineral products. In particular, the April resource sector numbers were boosted by higher food and chemical manufacturing activity.

The Richmond Federal Reserve Bank’s survey of manufacturers found that activity declined for the second month in a row. The composite index of general business conditions improved from -6 in April to -2 in May, but the negative reading was still at contractionary levels, even as the pace of the decline eased somewhat for the month. While there was some progress reported in January and February, it is hard to escape the fact that the Richmond Fed district’s main measure of manufacturing activity has seen a contraction in three of the past five months.

The May survey reflected lower levels of activity mostly across-the-board, with the decline in new orders accelerating from -8 in April to -10 in May. With fewer sales, it is not surprising that many of the other components were also down. Respondents indicated net decreases in capacity utilization, employment, and the average workweek. Interestingly, the measure for shipments turned positive, up from -9 in April to +8 in May, but the ability for these shipments to continue to increase in the coming months will depend on what happens with new orders. (continue reading…)

The Richmond Federal Reserve Bank found that manufacturing activity in the region softened again in October. The composite index of general business conditions fell from 4 in September to -7 in October. Last month, the improved figures had suggested some progress on the manufacturing front, with the composite index positive after three consecutive months of negative values. That appears to have been short-lived.

New orders, which had turned positive in September with an index reading of 7, returned to negative territory in October (-6). Poor sales numbers have often been the main driver of these types of sentiment surveys in recent months, and the Richmond Fed one is no exception.

In addition to orders, other components in contraction territory include shipments, capacity utilization, and employment. On the latter element, the index for net job hiring has been at -5 for three months straight. Clearly, there is a skittishness to hiring at this point, with weak sales and production reducing the desire to bring on new workers, at least for now.

The forward-looking measures remain more upbeat, but with mixed and often reduced expectations for the next six months. Respondents anticipate strong growth in new orders, shipments, and capacity utilization, with sales growth below what was forecast in September (but still high). This reflects a degree of cautious optimism regarding future activity, and as a result, the index for expected hiring increased slightly. With that said, some anxiety is still present in these numbers, as capital expenditures are now expected to be flat over the next six months.

Pricing pressures have resurfaced, with raw material prices increasing by 3.21 percent at the annual rate in October. This is more than double the 1.42 percent growth in input prices reported in September. Future costs are also higher, with the prices paid for raw materials expected to be up 2.55 percent over the course of the next six months. That is an increase from the 1.33 percent forecast noted last month.

Chad Moutray is chief economist, National Association of Manufacturers.

Two data points were released this morning, with both of them showing modest improvements in September. First, the Richmond Federal Reserve Bank reported that manufacturing activity expanded in September. This reflects some progress from the contractions observed in the previous three months, with the composite index of general business conditions up from -9 to 4. Behind this positive development were increased sales, with the new orders index rising from -20 to 7. The growth rate of shipments was also higher.

On the other hand, manufacturers in the region have not increased their hiring to match the better sales figures yet. Overall employment continues to contract, with the index for the number of employees unchanged in September at -5. The average workweek was also lower, with the contraction easing somewhat.

As we have seen in other surveys, raw material prices have picked up a little. The prices paid for inputs were up 1.42 percent, somewhat higher than the 1.32 percent gain seen in August. The longer-term trend reflects significant easing in producer prices, with the latest data showing an uptick. The prices received for final goods, though, grew by just 0.44 percent, suggesting some pricing pressures.

The forward-looking measures improved slightly, with shipments, new orders, and capacity utilization expected to grow strongly six months from now. With that said, the data also reflect some possible tentativeness in that assessment, as the growth rate of hiring and capital expenditures slowed. The expected employment index, for instance, dropped from 8 to 1, indicating almost no change in job growth over the course of the next six months. (continue reading…)

The Richmond Federal Reserve Bank said that growth in manufacturing activity slowed in May. The composite index of manufacturing activity is now 4, down from 14 April. As such, it follows similar findings from the Philadelphia Fed released last week showing weaknesses in the current environment.  Unlike the Philly survey, however, manufacturing activity remains positive, but the pace of growth has eased.

In the Richmond survey, the slowdown is reflected in several of the components. Manufacturers are seeing shipments, new orders and capacity utilization shift from growth in April to essentially being flat in May. For example, the index for new orders declined from 13 to 1 for the month. With new orders being a proxy for future activity, this is a concern, at least for the next month or so.

With that said, the outlook for the next six months remains positive. Various measures of manufacturing activity remain solidly positive, suggesting strong growth expectations for the second half of 2012. The forward-looking new orders index rose from 29 to 30. Similarly, shipments and capital spending numbers were strong.

It is perhaps because of these upbeat expectations that employment variables did not dip in May. The number of employees and average workweek indices both moved higher for the month. As such, manufacturers in the Richmond region have evidently stepped up hiring.

Pricing pressures continue to moderate. Manufacturers are currently reporting price increases for raw materials of 2.3 percent on average at the annual rate, down from 2.71 percent last month. The average price increase for final goods, though, was 0.98 percent.

Chad Moutray is chief economist, National Association of Manufacturers.

 Two narratives dominated last week’s economic discussion. First, as the Beige Book from the Federal Reserve Board stated, the economy “continued to increase at a modest to moderate pace in January and early February.” In his congressional testimony, Chairman Ben Bernanke was also quick to cite the important role that manufacturing has played in the recent rebound, with higher levels of activity reported in most areas of the country. Indeed, regional surveys from the Dallas and Richmond Federal Reserve Banks observed greater production activity and increased optimism for the next six months.

This upbeat assessment is shared by business economists at the National Association for Business Economics, who see a stronger outlook. Their consensus estimates for real GDP growth for this year and next are 2.4 percent and 2.8 percent, respectively. Adding to this sentiment, the Bureau of Economic Analysis (BEA) revised its estimates for fourth quarter 2011 growth up from 2.8 percent to 3 percent, led by increased consumer spending and business inventory accumulation. BEA also reported modest growth in personal income and spending for January, with strong gains in durable goods purchasing. Consumers, too, are more confident, according to the Conference Board, with their sentiments about the current and future economy at their highest level since this time last year.

In contrast to the more positive tone of many of these studies, the second narrative of last week focused on a series of indicators that unexpectedly declined. Most of us were anticipating growth for the Institute for Supply Management’s purchasing managers index, but it declined from 54.1 in January to 52.4 in February. This was led by a slower pace of growth for new orders, with production and employment also easing. Likewise, the Census Bureau reported reduced durable goods orders and construction spending in January.

In each of these cases, the longer-term trend remains a positive one and is in line with the first narrative. November and December figures were sharply higher, and so it might be expected to have some easing afterwards. Growth should resume in the coming months, especially as industrial production should grow around 4 percent this year. Even with that said, it is also clear that manufacturers are closely watching the events of Europe, once-again resurgent energy and raw material prices, and policy actions stemming from Washington. They remain cautious that one of these headwinds might derail growth, even with higher optimism overall.

This week, everyone will be focused on Friday’s jobs numbers. With 82,000 net new jobs created in the past two months, I anticipate continued improvements in employment for the sector, but perhaps not as large as were seen in November and December. Other key indicators of note include the release of revised productivity data on Wednesday and international trade findings on Friday.

Chad Moutray is chief economist, National Association of Manufacturers.

Last week, in discussing the manufacturing survey from the New York Federal Reserve Bank, I said that “the `improvement’ seen in these numbers is mostly that conditions did not worsen.” The same could be said for today’s report from the Richmond Federal Reserve Bank.

The composite index for the Richmond Fed’s manufacturing survey contracted five of the six months between May and October. In light of that, the zero reading for November seems positive in that manufacturing activity has stopped contracting, at least for now.

In fact, much of this report highlights conditions unchanged from October, with little change in shipments, employment and the average workweek. The index for new orders was -2 in November, an improvement from the -17 reading of September and -5 for October. Some modest upticks in supplier delivery time and wages were observed, however.

In terms of pricing pressures, respondents reported that raw material prices grew 3.42 percent on average at annual rates, which was higher than the 2.20 percent observed last month. Finished goods prices rose 2.64 percent for the month. This also was above last month’s average price increase of 1.75 percent. Manufacturers continue to see elevated pricing pressures over the next six months.

As we have seen in many of these regional sentiment surveys, manufacturers in the Richmond district are significantly more upbeat about future activity, with the composite index up from 28 in October to 36 in November. Respondents anticipate faster growth in new orders, shipments, capital expenditures and employment moving forward.

Chad Moutray is chief economist, National Association of Manufacturers.  

Mirroring many of the other regional surveys, the Richmond Federal Reserve Bank said that manufacturing activity contracted in August. The composite index for manufacturing fell from -1 in July to -10 in August, reflecting reduced shipments, new orders, capacity utilization, and average workweek. The number of employees and average wages were essentially unchanged, but positive, and inventories continued growing.

Pricing pressures remain a concern, with raw material prices growing at an annual rate of 4.16 percent, according to the respondents. Meanwhile, the prices that manufacturers receive for their goods edged up to 1.46 percent in August, from 1.18 percent in July. Still, this suggests that manufacturers are not able to pass along much of the higher costs that they are facing.

Moving forward, manufacturing activity in the Richmond region remains positive, but businesses are less optimistic than earlier in the year. For instance, the index for expected new orders has fallen from 44 in June to 17 in August. Similar drops are seen with shipments, capacity utilization, employment and capital expenditures.

Overall, this survey shows that the economic situation has deteriorated, with the recovery stalling out and manufacturers contracting. This was seen in the New York and Philadelphia regions last week, and we are seeing it today with this Richmond survey, unfortunately.

Chad Moutray is chief economist, National Association of Manufacturers.