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.

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