Richmond Fed: Manufacturing activity pulled back in September, but expectations upbeat

Manufacturing activity in the central Atlantic region pulled back in September after expanding during the previous seven months, according to the Federal Reserve Bank of Richmond's latest survey, released on September 28. The index of overall activity was pushed lower as shipments and employment edged into negative territory. Other indicators also suggested softer activity. District contacts reported that the volume of new orders flattened, order backlogs turned negative, and delivery times held steady. Furthermore, manufacturers reported growth in capacity utilization flat lined, while inventories grew at a slightly quicker pace.

Despite the decline in activity, manufacturers were more optimistic about their future prospects in September. Survey contacts anticipated that their shipments, new orders, backlog of orders, capacity utilization and the average workweek would grow more rapidly in the months ahead.

Survey measures of current prices revealed that both raw materials and finished goods prices grew at a more measured pace in September. Respondents indicated that during the next six months they expected somewhat faster growth in both raw materials and finished goods prices from what they had anticipated last month.

Current activity
In September, the seasonally adjusted composite index of manufacturing activity — the Richmond Fed's broadest measure of manufacturing — turned negative, losing 13 points to minus-2 from August's reading of 11. Among the index's components, shipments fell fifteen points to -4, new orders lost ten points to finish at 0, and the jobs index declined 15 points to -3.

Other indicators also suggested weaker activity. The backlogs of orders measure turned negative losing 11 points to -11, and the index for capacity utilization flattened declining 14 points to 0. The delivery times index held steady at 8, while our gauges for inventories were somewhat higher in September. The finished goods inventory index inched up four points to 15, and the raw materials inventory index advanced four points to finish at 13.

Employment
Labor market activity also weakened in September. The manufacturing employment index registered a -3 vs. August's reading of 12, and the average workweek measure lost 14 points to 0. In addition, wage growth posted a five-point loss to 8.

 

Expectations
In the September survey, contacts were more bullish about their business prospects during the next six months. The index of expected shipments skyrocketed thirty-one points to 38, and the new orders index climbed 26 points to 42. In addition, the capacity utilization index jumped 33 points to 33, and the backlogs indicator advanced 21 points to 20. The vendor lead time index turned positive, gaining seven points to 6, while planned capital expenditures held steady at 8.

District manufacturers' intentions to expand hiring were also generally more bullish than a month ago. The expected manufacturing employment index was virtually unchanged at 10, and the average workweek indicator soared nineteen points to 20. Furthermore, the expected wages index posted a 16-point gain to 24.

Prices
District manufacturers reported that raw materials prices increased at an average annual rate of 1.31 percent — a pullback from August's reading of 2.19 percent. Finished goods prices rose at a 1.06 percent pace, which was somewhat below August's reading of 1.45.

Looking ahead, respondents expected that the prices they pay will advance at a 2.46 percent pace, slightly above the previous month's expectation of 2.21 percent. Additionally, contacts looked for finished goods prices to increase at a 1.17 percent annual rate, a bit above last month's expectation of 0.91 percent.