Richmond Federal Reserve Archives - Shopfloor

Manufacturing Orders, Shipments Weaken in Richmond Fed Survey

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The Richmond Federal Reserve Bank observed contracting levels of manufacturing activity in July. This bucked the trend that we saw last week from the New York and Philadelphia Fed surveys, which both noted improvements this month. The composite index of general business assessment declined from 7 in June to -11 in July, its first decline since May and the fourth so far in 2013.

Reduced new orders, shipments, and capacity utilization weakened sentiment in the Richmond district, reversing the progress observed in June. For instance, the index of new orders dropped from 9 in June to -15, a surprisingly sharp decline in sales, particularly given some of the other national indicators which have shown the opposite. The average workweek grew at a slower pace (down from 11 to 2). Meanwhile, hiring in the region has stalled, with the index for employment unchanged at zero. The silver lining is that it is no longer falling, as it had been negative in both April and May.

Despite the current softness in the marketplace, the respondents in the Richmond Fed survey continued to be cautiously optimistic about the second half of 2013. In fact, the data indicate that manufacturers anticipate decent growth in both new orders (up from 21 to 24) and shipments (also up from 21 to 24) over the course of the next six months. At the same time, they expect to see modest gains in both employment (down from 9 to 5) and capital expenditures (up from 9 to 11), suggesting that business leaders plan to add workers and increase their investments on the basis of possibly higher prospects in the coming months. Still, it is notable that hiring remains more sluggish than other perceived improvements in activity moving forward, as evidenced by the easing in this month’s reading.

Pricing pressures, meanwhile, have picked up, but are still not at elevated levels. The prices paid for inputs increased 1.60 percent at the annual rate in July, up from 1.13 percent in June and 1.00 percent in May. Manufacturers anticipate some acceleration in raw material costs, but not much changed from what was seen last month. Input costs are anticipated to grow 2.06 percent on average six months from now, just marginally higher than the 2.01 percent predicted in the June survey. It will be interesting to see where that figure goes in the coming months, particularly given the recent run-up in energy costs.

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

Manufacturing Activity in Richmond Contracts in January

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The Richmond Federal Reserve Bank noted contracting levels of manufacturing activity in its January survey, reversing the positive figures seen in November and December. Since the end of May 2012, its composite index of general business activity has been negative 5 out of 8 months, reflecting the slower pace of growth in the second half of the year and continuing weaknesses. This overall index decreased from 5 in December to -12 in January, its lowest level since July.

The more-downbeat assessment mirrors similar findings last week from the New York and Philadelphia Federal Reserve Banks. As we saw in those surveys, much of the data was negative across-the-board. For instance, the index for new orders dropped from 10 to -17, indicating a steep decline in average sales. This was undoubtedly behind much of the other negative sentiment. There were falling levels on average for shipments, capacity utilization, employment, and the workweek, as well.

Notwithstanding these declines, manufacturers in the Richmond region continue to be cautiously optimistic about the next six months. This is true even with the many headwinds that we face right now, including persistent uncertainties. There is modest growth expected for shipments, new orders, and capital spending. With that said, hiring should remain sluggish. Employment levels are expected to be the same, with an index reading of zero, for instance.

At the same time, pricing pressures have accelerated since the last survey. The prices paid for inputs increased 2.54 percent at the annual rate in January, up from 2.01 percent in December and 1.99 percent in November. This faster pace is somewhat different from the conclusion of the most recent producer price data, which found raw material costs easing in December.

Chad Moutray is chief economist, National Association of Manufacturers.

Richmond Manufacturing Activity Continues to Contract; Consumer Confidence Drops

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The Richmond Federal Reserve Bank reported that manufacturing activity contracted in its region for the third consecutive month. With that said, the pace of the contraction has eased somewhat, with the composite index of general business activity improving from -17 in July to -9 in August.

This mirrors a similar movement observed in yesterday’s Dallas Fed survey. The U.S. economy remains soft, with manufacturers uneasy regarding the current environment and less confident of gains in the coming months.

A sharp drop in new orders helped to diminish manufacturing activity in August, with the volume of new orders only improving slightly from -25 to -20. The subcomponents of this index were weak across-the-board, including contracting levels of capacity utilization, employment, and the average workweek. Net job creation turned negative this month – something that stands in contrast to some of the other regional surveys, such as the one from Texas. On the other hand, shipments of manufactured goods moved from a significant contraction last month to a slight gain this time.

Even with the more downbeat assessment of the existing state of the economy, manufacturers remain cautiously optimistic about the next six months; however, their level of positivity has definitely diminished in the past couple months. The forward-looking index for new orders was 17 in August, or nearly half of the 29 observed in June.   While expected capacity utilization is anticipated to expand, the pace of employment and capital spending growth has definitely been impacted.

On the positive side, pricing expectations reflect the easing seen over the past few months. Manufacturers report price increases for raw materials of 1.32 percent, or roughly the same rate as last month. This is about half of the pace experienced just four months ago. At the same time, input prices are expected to grow 2.78 percent over the next six months, an uptick from the 2.42 percent noted in the previous survey.

Meanwhile, just as manufacturers have grown more anxious, so have consumers. The Conference Board found that consumer confidence fell, down from 65.4 in July to 60.6 in August. the lowest level since November. The decline was the result of increased worries about the future state of the economy, with the expectations component dropping from 78.4 to 70.5. Given the now-constant discussion about the fiscal cliff and economic challenges moving into 2013, this decrease should not be a surprise. Americans did not alter their view of the current economic environment from last month.

Individuals have become more concerned about employment and income prospects. The percentage of respondents saying that jobs were plentiful dropped from 7.8 percent in July to 7.0 in August.

Nearly 41 percent suggested that jobs were “hard to get.” At the same time, the percentage of those expecting income to decrease has risen steadily throughout the course of the past six months, up from 13 percent in February to 16.8 percent in August. The percentage stating that income should increase has remained relatively constant over that time frame at around 15.5 to 15.7 percent.

Consumers’ buying plans were mixed in August. Those intending to purchase an auto dropped from 14.3 percent in July to 11.6 percent in August. The motor vehicle sector has been a larger driver of recent growth, helping to boost July’s durable goods orders, for instance. So, any decline could have significant impacts on the larger economy. Nonetheless, the Conference Board also suggests that home buying plans have increased, up from 4.6 to 5.3 percent. This is good news for increasing slow-but-steady gains in the still-depressed housing sector.

Chad Moutray is chief economist, National Association of Manufacturers.

Manufacturing Activity in Richmond Contracts Sharply

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For the second consecutive month, the Richmond Federal Reserve Bank said that manufacturing activity contracted in July. The composite index of general business activity fell from -1 in June to -17 in July. Note that historical data have revised due to an update in the seasonal adjustment factors; June’s reading was originally reported to be -3. Even with the change, the drop in July was large, suggesting a dramatic slowing in production in the District. As such, it closely mirrors the pessimistic assessment observed last week from the Philadelphia Federal Reserve Bank.

These weaknesses were seen across-the-board in the various components of the Richmond survey. Respondents indicated contracting levels of new orders, shipments, capacity utilization, and the average workweek. The new orders index, for instance, plummeted from -1 to -25. Net hiring remained only marginally positive, with the employment index falling from 12 to 1. This suggests that net hiring will grind to a near halt in the region, but at least it is not negative.

Part of the reason that employment has not contracted yet might due to the fact that manufacturers continue to be cautiously optimistic about the next six months. But their level of optimism has diminished from previous surveys, with the expected shipments index falling from 29 in May to 16 in June. Other measures had equal drops. Capital expenditures were the lone holdout, with the pace of investments picking up from 18 to 20. Read More

Richmond Manufacturers Pick Up the Pace

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The Richmond Federal Reserve Bank announced that manufacturers in its region expanded at a slightly faster pace in April, an improvement from the easing in March. While activity in 2012 has picked up from weaknesses at the end of 2011, the composite index has been somewhat volatile, even with numbers that are still “expansionary.”

It has registered 12, 20, 7, and 14 in the first four months of the year. Still, the higher April index reading is welcome news, especially with so many other regions reporting slightly weaker activity of late.

Looking at the surveys subcomponents, manufacturers have seen increased new orders, shipments, capacity utilization and employment in April. Inventory levels for both finished goods and raw materials were also higher.

Moreover, the outlook for the next six months remains positive. Some of the expectations variables dipped slightly, including the volume of new orders, capacity utilization and capital expenditures. But, the net percentage of respondents anticipating higher levels of each is still sufficient to report a mostly optimistic assessment. From a job creation standpoint, more firms are anticipating adding workers in the coming months than said so in the last survey.

In terms of pricing pressures, manufacturers in the region expect moderate inflation to persist. They are currently reporting price increases of 2.71 percent on average at the annual rate, up from 2.5 percent last month. The anticipation for the next six months would be for prices to grow by 2.55 percent.

Chad Moutray is chief economist, National Association of Manufacturers.