Manufacturing activity in the Richmond Federal Reserve Bank region faltered in July, according to a new survey released this morning. The Fifth District Manufacturing Index fell from 3 in June to -1 in July, showing a modest contraction in activity over the past month. After growing strongly earlier in the year, this index has wavered since. The June number represented a slight rebound, but with the July figure, the index has been negative two of the past three months.

Behind these numbers are declines in new orders, shipments, and capacity utilization. Employment continues to grow, albeit more slowly than in past months. The average workweek was unchanged. Pricing pressures eased somewhat, with the growth in raw materials prices falling from 4.53 percent to 3.41 percent (both at the annual rate). Meanwhile, the increases in prices received fell from 1.94 percent to 1.18, reflecting a weakness on the part of manufacturers in the Richmond region in passing on these costs to the consumer.

Longer-term expectations remain optimistic, but the indices for future expectations have fallen somewhat since June. Despite the decline, these figures bode well for a better second half of 2012. The indices for new orders, shipments, capacity utilization, employment, and wages, for instance, stand in stark contrast to the current economic sentiment. For example, the index for new orders, while falling from  44 to 40 over the past month, remains elevated and suggests a high degree of optimism moving forward.

Such sentiments are consistent with other surveys, including yesterday’s numbers from the Dallas Federal Reserve Bank. While this survey from the Richmond Fed is disappointing – particularly the fact that the rebound suggested in June has stalled – we can hope that the more optimistic expectations bode well for the next six months.