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Fifth District Survey of Manufacturing Activity

July 28, 2015 10 a.m.

Manufacturing Sector Activity Expanded Moderately; Wage Growth Remained Steady

Overview

Fifth District manufacturing activity increased moderately in July, according to the most recent survey by the Federal Reserve Bank of Richmond.* Shipments and new orders picked up this month, and order backlogs also strengthened. Manufacturing employment softened this month, and average wages continued to increase at a moderate pace. Prices of raw materials rose more quickly in July compared to last month, while prices of finished goods grew about on pace.

Manufacturers remained optimistic about future business conditions. Survey participants expected faster growth in shipments and in the volume of new orders in the six months ahead. Producers looked for increased capacity utilization and anticipated rising backlogs. Expectations were for longer vendor lead times.

Survey participants anticipated an increase in hiring and solid growth in wages during the next six months. However, they expected modest growth in the average workweek. For the six months ahead, manufacturers expected little change in prices paid, although they looked for faster growth in prices received.

* Seasonal adjustment factors were recalculated this month and applied to historical data to better reflect current economic trends. In this report, comparisons to last month's indexes are made to the revised June indexes. New factors will be calculated annually.

Current Activity

Overall, manufacturing conditions strengthened in July. The composite index moved to a reading of 13 from last month's reading of 7. Shipments advanced 11 points to end at 16, while the index for new orders added seven points to finish at a reading of 17. Manufacturing employment softened this month; the index settled at 1.

Backlogs rose at a faster pace this month; the index gained seven points, ending at 10. Additionally, capacity utilization grew at a faster pace, moving the index up three points to a reading of 9. Vendor lead time shortened slightly, with that index edging down one point to 4. Finished goods inventories rose at a slower pace compared to a month ago. The index lost six points to end at 24. Raw materials inventories also increased at a slower pace this month. That gauge declined seven points to 16.

Manufacturing Activity
Manufacturing Shipments
Manufacturing New Orders

Employment

Manufacturing employment softened this month; the July index flattened to a reading of 1. Furthermore, the average workweek shortened, with that index also finishing at a reading of 1. Average wages rose nearly on pace with a month ago, with that index ending two points below the previous month at 14.

Manufacturing Employment

Expectations

Producers remained positive about business conditions for the six months ahead. They anticipated solid growth in shipments and in the volume of new orders. The indexes for expected shipments and new orders ended at readings of 42 and 43, respectively.

Survey participants expected backlogs would build at a faster pace in the next six months. The July outlook index gained 10 points to finish at a reading of 24. Manufacturers expected vendor lead times would lengthen; the outlook index added nine points. Firms anticipated capital spending would grow at a faster rate, pushing the index up five points to 31. The index for future capacity utilization dropped just two points, ending at 27.

Firms looked for strong growth in hiring in the months ahead. The index for the expected employment advanced to a reading of 22. The index for expected average wages remained solid, finishing at 29, while the expected average workweek gauge dropped nine points to a reading of three.

Prices

Prices of raw materials rose more quickly this month, advancing at an annualized 1.45 percent rate, compared to a 0.97 percent pace previously. Prices of finished goods rose at a 0.58 annualized rate, slightly below June's 0.59 percent pace.

For the six months ahead, survey participants expected input prices would continue to grow at the current pace, following June’s expectation for 1.47 percent growth. Finished goods prices were expected to rise at an annualized 1.03 percent rate, compared to the previous outlook for 0.92 percent growth.

Manufacturing Price Trends

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Regional Survey Team (804) 697-8702