Manufacturing activity in the central Atlantic region contracted again in July, according to the Richmond Fed’s latest survey. Respondents reported somewhat greater declines in factory shipments and new orders and more moderate weakness in employment. Most other indicators also implied weaker activity. District contacts reported capacity utilization declined further and vendor delivery times reversed the positive reading seen last month. Moreover, manufacturers noted orders backlogs were virtually unchanged and finished goods inventories grew on pace with June.

Looking ahead, manufacturers’ optimism about future business prospects dropped considerably in July. Firms anticipated that growth in shipments, new orders, backlogs, employment, and average workweek would turn negative during the next six months.

Survey assessments of current prices were on par with a month ago. Looking forward, respondents expected price growth to quicken over the next six months.

In July, the seasonally adjusted manufacturing index—our broadest measure of manufacturing activity—decreased to -16 from June’s reading of -12. Among the index’s components, shipments lost twelve points to -23, new orders moved down four points to -17 and the jobs index gained seven points to finish at -5.

Other indicators also suggested softer activity. Capacity utilization fell six points to -15, and vendor delivery times turned negative, inching down four points to -2. The orders backlogs index held nearly steady at -22, while our gauges for inventories were mixed. The finished goods inventory index slipped one point to end at 27, while the raw materials inventory index edged up three points to finish at 20.

Labor market activity at District plants was mixed in July. The employment index picked up seven points to end at -5, while the average workweek indicator lost six points to -6. Wage growth remained modest, matching its three-month average of 8.

In the July survey, our contacts were less confident about their business prospects for the next six months. The index of expected shipments declined eighteen points to -4, and the new orders indicator turned negative, losing twelve points to end at -1. In addition, the orders backlogs index remained in negative territory but contracted at a slower pace, gaining three points to -4. Vendor delivery times posted a nine-point loss to -9, and capacity utilization fell nine points to 4. Moreover, readings on planned capital expenditures declined from a month ago; the index registered a three-point loss to 1.

District manufacturers’ hiring plans in July were less optimistic as well. The expected manufacturing employment index declined five points to -8, and the average workweek index fell six points to end at
-8. Additionally, the expected wage index stayed on pace—nearly matching its three-month average of 20.

District manufacturers reported that raw material prices increased at an average annual rate of 4.41 percent in July compared with June’s reading of 4.74 percent. Finished goods prices rose at a 3.34 percent pace versus 3.43 percent last month. Price pressures remained elevated and respondents continued to voice concern over rising energy and transportation costs. Looking forward, respondents expected that the prices they pay will advance at a 5.84 percent pace during the next six months, a series high, compared to the previous month’s expectation of 5.57 percent. In addition, contacts looked for finished goods prices to increase at a 3.41 percent annual rate during the next six months, the highest reading in our series, compared to last month’s expectation of 3.23 percent.