Fifth District Survey of Manufacturing Activity

Aug. 26, 2014 10 a.m.

Manufacturing Sector Activity Strengthened; Shipments and New Orders Picked Up

Overview

Fifth District manufacturing activity continued to improve in August, according to the most recent survey by the Federal Reserve Bank of Richmond. Shipments and the volume of new orders picked up this month. Although manufacturing employment and average wages rose at a slower pace this month, the average workweek lengthened.

Manufacturers anticipated stronger business conditions during the next six months. Firms expected faster growth in shipments and new orders in the six months ahead. Additionally, survey participants looked for increased capacity utilization and expected order backlogs to grow more quickly. Expectations were for longer vendor lead times.

Survey participants' outlook for the months ahead also included faster growth in average wages and the average workweek, with a pickup in hiring.

Prices of raw materials and finished goods rose at slower pace in August compared to last month. In contrast, manufacturers expected faster growth in prices paid and prices received over the next six months.

Current Activity

Overall, manufacturing conditions continued to improve in August. The composite index for manufacturing climbed to a reading of 12, the highest reading since March 2011. The index for shipments gained seven points and the new orders index advanced eight points, finishing at readings of 10 and 13, respectively. Manufacturing employment grew more slowly this month; the employment indicator slipped two points to a reading of 11.

Backlogs rose at a faster pace this month; the index jumped to a reading of 15. Additionally, capacity utilization grew at a faster pace, pushing the index up 13 points ending at 17. Vendor lead time lengthened, moving the index to 16 from a reading of 12 last month. Finished goods inventories rose at a faster pace compared to a month ago. The index gained four points, ending at 16. In contrast, raw materials inventories increased at a slower rate compared to last month. That gauge moved to 17 from 21.

Employment

Manufacturing employment grew at a slightly slower pace this month; that index retreated two points ending at 11. The average workweek lengthened, pushing the index up five points to end at 8, while the index for average wages slipped five points from last month's reading, moving to 11.

Expectations

Manufacturers anticipated more robust business conditions for the six months ahead. They expected a pickup in shipments and new orders. The indexes for expected shipments and new orders ended at readings of 43 and 47, compared to the previous month's indexes of 36 and 34.

Survey participants expected backlogs would rise at a faster pace in the next six months. That outlook index gained 14 points to finish at a reading of 29. Producers expected vendor lead time would lengthen; the outlook index added four points finishing at 8. Firms anticipated capital spending would grow at a faster rate; the expected capital spending index jumped to 27 from last month's reading of 19. The index for future capacity utilization gained six points to end at a reading of 35.

Firms continued to look for a pickup in hiring in the months ahead. The index for expected employment dropped one point from last month's reading to settle at 18. The index for expected average wages tacked on five points to end at 28, while the index for the expected average workweek held steady at 10 for a third month.

Prices

Prices of raw materials rose more slowly this month, advancing at an annualized 1.39 percent rate, compared to a 1.99 percent previously. Prices of finished goods rose at a 0.76 percent annualized rate, below July's 0.99 percent pace.

For the six months ahead, survey respondents expected input prices would rise more quickly, at an annualized 2.05 percent rate, following July's expectation for 1.89 percent growth. Finished goods prices were expected to rise at an annualized 1.34 percent rate, compared to the previous expectation for 1.04 percent growth.

Survey Participation, Report, and Data Questions

Jeannette Plamp
Associate Regional Economist
(804) 697-8152