Fifth District manufacturing activity strengthened in January, with continued growth in new shipments and the volume of new orders. Employment picked up, although increases in average manufacturing wages were less widespread than in December. The average workweek continued to grow, but increases were less prevalent in January than a month earlier. Growth in input prices moderated, while growth in prices of finished goods accelerated.
Expectations for shipments in the next six months were upbeat, and survey participants' outlook for the volume of new orders continued to be optimistic. Manufacturers anticipated longer lead times and increasingly planned for more hiring and higher wages. Despite a decline in the current month's average workweek index, producers continued to expect a longer workweek during the six months ahead.
Survey respondents looked for prices of inputs to rise more rapidly over the first half of 2017, while they anticipated slower increases in prices received for their goods.
Manufacturing activity expanded in January, with the composite index adding four points to last month's gauge to end the survey period at a reading of 12. The index for shipments gained a point, finishing at 13, and the volume of new orders index rose to 15 from 11. Increased vendor lead times were less likely to rise this month, with the indicator moderating by five points to a reading of 5.
Growth in the current backlog of new orders moderated this month, moving to 4 from December's reading of 8. In addition, the capacity utilization measure shed two points, to settle at 8. Inventory growth slowed from a month ago. The index for finished goods settled three points lower this month, at a reading of 8, and the indicator for raw materials inventories softened 10 points to end at 15.
Manufacturers were hiring again in January after a pause in December. Manufacturing payrolls grew in January, albeit modestly, pushing the index up nine points to 8 this month. Indicators for the average workweek and average wages softened compared to last month's readings. The index for the average workweek settled six points lower at a reading of 5, and the average wage indicator dropped eight points to end the survey period at 11.
Manufacturers were optimistic about their business prospects for the next six months. Increases in planned capital spending were more common, with the index rising to 28 from last month's reading of 21. The outlook index for expected shipments gained five points compared to a month ago, pushing the January index to 50. In addition, the indicator for the volume of new orders shed three points, but remained solid at a reading of 44.
Producers also expected a healthy order backlog and greater capacity utilization; the order backlog gauge tacked on three points to finish at 24 and the index for capacity utilization shaved three points to settle at 34. Manufacturers expected longer lead times in the months ahead. The vendor lead time index added a point in January, ending at 12.
Employers planned to continue adding employees during the next six months, bringing the index for the number of employees to 27 from 22. While continued wage gains were expected this month, the gauge softened four points from a month earlier, dropping to a reading of 31. The outlook for the average workweek also pulled back, finishing at a reading of 10, compared to December's 13.
Prices of raw materials rose at an annualized rate of 1.52 percent, slowing slightly from December's 1.60 percent pace. Prices of finished goods rose more rapidly in January, climbing at a 0.96 percent annualized rate. In December, finished goods prices grew by 0.22 percent.
For the six months ahead, survey participants anticipated input prices would grow at a 1.75 percent pace, compared to the December outlook for 1.58 percent annualized growth. Prices of finished goods were expected to increase at an annualized 1.45 percent rate, following last month's 1.57 percent annualized growth rate.
Associate Regional Economist