Richmond Fed Manufacturing Survey Shows Improvement With Shipments, New Orders On The Rise

Manufacturing activity in the central Atlantic region resumed at a more robust pace in July after a soft June, the Richmond Federal Reserve said Tuesday.

Both factory shipments and new orders expanded in July, while employment growth remained modest, the Richmond Fed said in its Manufacturing Conditions Survey. Other indicators were mostly positive, while orders backlogs contracted, though at a slower pace in July. Capacity utilization moved back into positive territory, and manufacturers reported slightly slower growth in vendor lead-time and inventories.

The expectations components of the survey were mixed. Companies anticipate faster growth in new orders and employment in coming months, but trimmed their expectations for shipments growth from last month's reading.

In July, raw materials prices grew a little faster than in last month's report, while finished goods prices grew at a somewhat slower rate. For the coming six months, respondents looked for raw material prices to rise more quickly, although they expected finished goods prices to maintain a more modest pace of increase.

In July, the seasonally adjusted manufacturing index rose to 12 from June's reading of 4. Among the index's components, shipments jumped ten points to 13, and new orders picked up eleven points to 15, while the jobs index was nearly unchanged at 5.

The capacity utilization index increased markedly, gaining twenty points to 12 and the orders backlogs indicator moved up fourteen points but remained just in negative territory at -1. In contrast, gauges for both vendor lead-time and inventories were slightly lower. Vendor lead-time slipped two points to 6, while the raw materials inventories index held nearly steady at 8, and the finished goods inventory index inched down three points to 17.

Labor market conditions remained solid at factories in the region in July. The employment index registered a 5 versus June's 6, and the average workweek rebounded, adding twelve points to 7. In addition, wage growth added two points to 16. Manufacturers generally expect labor market conditions to firm in coming months.

Outlooks for business prospects for the coming six months were mixed. Though, the index of expected shipments fell seven points to 14, the new orders indicator rose five points to end at 20. The orders backlog index shed nine points to 0, and the capacity utilization indicator gave up fifteen points, also settling at 0. In addition, vendor lead-time posted a six-point loss to 1, while planned capital expenditures held steady at 23.

In July, District manufacturers reported that raw materials prices increased at an average annual rate of 2.86 percent compared to June's reading of 2.79 percent. Finished goods prices rose at a 1.77 percent pace, somewhat lower than the 2.16 percent rate reported last month. Looking ahead to the next six months, respondents expected the prices they pay to advance at a 3.14 percent pace, a little above the previous month's forecast of 2.98 percent. Finally, contacts looked for finished goods prices to advance at a 1.91 percent annual rate--a touch below last month's 2.02 percent pace.