Fifth District manufacturing activity improved in July, according to the most recent survey by the Federal Reserve Bank of Richmond.* New orders and shipments increased this month, while backlogs flattened. Employment rose modestly, while firms continue to report wage increases. Prices of raw materials and finished goods rose at a slower pace in July, compared to last month.
Manufacturers looked for better business conditions during the next six months. Firms expected moderate growth in shipments and in the volume of new orders in the six months ahead. In addition, survey participants anticipated increased capacity utilization and expected backlogs to rise. Expectations were for little change in vendor lead times during the six months ahead.
Survey participants' outlook for the months ahead included mild growth in the number of employees. Future wage increases were more prominent in the July expectations index. Firms expected faster growth in prices paid, however, anticipating somewhat slower growth in prices received.
* - Seasonal adjustment factors were recalculated this month and applied to historical data to better reflect current economic trends. Comparisons to prior months’ indexes are made to the revised series. New factors will be calculated annually.
Overall, manufacturing activity increased in July. The composite index for manufacturing climbed 20 points to a reading of 10. Additionally, the indicators for shipments and new orders increased this month. Those indexes ended at readings of 7 and 15, respectively. The orders backlog index flattened in July, the index moved up 13 points to end at 1. The manufacturing employment index rose modestly this month. That indicator gained five points to end at 6.
The capacity utilization index advanced 14 points in July, pulling the index up to a reading of 3. Vendor lead time lengthened this month, with that indicator moving up eight points to end at 10. Finished goods inventories rose across fewer firms compared to a month ago; that index moved down 11 points, ending at a reading of 15. Growth in raw materials inventories continued in July, however that indicator lost three points to end the survey period at 23.
Manufacturing employment strengthened mildly in July. The index moved up five points ending at a reading of 6. The number of firms reporting average wage increases remained on pace with last month; that index ended one point below June at 14. The average workweek index flattened to a reading of one.
Manufacturers anticipated positive business conditions during the next six months. The outlook indexes for shipments and new orders strengthened compared to last month, ending at readings of 19 and 23, respectively.
Survey participants expected backlogs to rise during the next six months. The outlook index finished five points higher in July, at a reading of 10. Producers expected vendor lead time to change little in the months ahead; the outlook indicator lost one point to end at 2. Firms anticipated rising capital spending over the next six months. The July indicator added three points, ending at 17. Manufacturers looked for increased capacity utilization. That outlook index advanced 10 points to finish at 14.
Firms looked for modest hiring growth in the six months ahead. The expectations index for employment added five points to end at 7. The index for expected average wages increased sharply, adding 25 points to end at 40, while the expected average workweek indicator flattened to a reading of 2.
Prices of raw materials rose at an annualized 0.64 percent rate, slower than June's 1.14 percent pace. Additionally, prices of finished goods rose at a slightly slower pace, at an annualized 0.48 percent rate.
For the six months ahead, survey participants anticipated input prices would grow more quickly, at an annualized 1.17 percent pace. Finished goods prices were expected to rise at an annualized 0.46 percent rate.
Associate Regional Economist