The Richmond Federal Reserve Bank said that manufacturing activity in its district accelerated strongly in February. The composite index for the general business assessment doubled from 14 in January to 28 in February. This was not far from November’s all-time high in the survey’s 34-year history (30). The bottom line is that manufacturers in the region see relatively strong expansions in activity through the first two months of 2018, continuing the trend of decent growth experienced for much of 2017. The underlying data were also encouraging, including healthy expansions in new orders (up from 16 to 27), shipments (up from 15 to 31), capacity utilization (up from 13 to 32), employment (up from 10 to 25) and capital expenditures (up from 18 to 28).
The Richmond Fed has also added several measures to provide even more details on this activity, with improvements seen in February for equipment and software expenditures (up from 22 to 27) and local business conditions (up from 13 to 29). In addition, an index was created for the availability of skills needed (down from -10 to -17), which continued to illustrate just how much tightness in the labor market has challenged manufacturers’ ability to hire new workers.
Moving forward, manufacturing respondents in the Richmond Fed’s district were very optimistic in their outlook for the next six months. Forward-looking measures for new orders (up from 36 to 40), shipments (unchanged at 45), capacity utilization (up from 30 to 34), employment (up from 21 to 22) and capital expenditures (up from 30 to 36) remained quite robust in February.
Meanwhile, manufacturers in the district see pricing pressures picking up in the months ahead, mirroring data seen in other reports. Those completing the survey said that prices paid for raw materials increased by 1.89 percent at the annual rate in February, up from 1.79 in January. Moreover, raw material prices are expected to grow by 2.69 percent at the annual rate six months from now, up from 2.33 percent in the prior survey. That is the highest expected growth rate for inflation since May 2013. (To be fair, input costs were seen growing 2.68 percent one year ago, but decelerated sharply after that.)