Fifth District Survey of Manufacturing Activity

Feb. 28, 2017 10 a.m.

Manufacturing Activity Expanded; Capacity Utilization Rose Sharply

Overview

Fifth District manufacturing activity expanded in February, as shipments increased and the volume of new orders rose broadly, according to the latest survey by the Federal Reserve Bank of Richmond. Employment gains were more common and longer workweeks prevailed. Wage increases were more widespread. Prices paid for inputs rose more rapidly than in January, and prices received also accelerated.

Looking to the six months ahead, manufacturing executives anticipated robust business conditions, with strong growth in shipments and new orders, along with higher capacity utilization. Expectations moderated for vendor lead times. Manufacturers' outlook on employment was similar to a month ago, with expectations for increased hiring and additional wage growth.

Survey respondents expected prices of inputs to moderate compared to the current month and prices received to rise slightly faster in the six months ahead.

Current Activity

Manufacturing activity strengthened in February, pushing the composite index to 17 from the previous reading of 12. The shipments gauge moved three points higher, to settle at a reading of 16, and the index for the volume of new orders jumped to 24 from 15. The backlog of orders also picked up, with that index moving to 8 from 4. Vendor lead times lengthened, with the indicator rising to 9 from January's reading of 5. Finally, the index for capacity utilization nearly doubled from the previous reading, finishing the survey period at 15.

Inventories of raw materials and finished goods rose widely. The index for raw materials inventories added five points in February to reach a reading of 20, while the index for finished goods inventories picked up six points to finish at a reading of 14.

Employment

The manufacturing employment index increased compared to a month ago, rising two points this month to a reading of 10. The average workweek lengthened, pushing the index to 16 from 5 a month earlier. Average wage increases were also more common in February. That indicator climbed four points to 15.

Expectations

Manufacturers were increasingly upbeat about demand for their goods in the next six months. The indicator for expected shipments rose three points to a reading of 53 and the index for the volume of new orders jumped to 53 from the previous reading of 44. Manufacturers' expectations were for moderate increases in the backlogs of new orders, with that index finishing at 21 compared to January's reading of 24. Producers expected greater capacity utilization, driving the index up 12 points to 46 in February. However, they looked for vendor lead time to taper off, softening the index to 8 from the previous reading of 12. The index for planned capital expenditures settled at a reading of 27, just one point below last month's index.

Producers expected to do more hiring during the next six months; the index shed just four points from a month ago, finishing at 23. Their outlook for the average workweek was a point higher this month, at a reading of 11. The index for average wage expectations dropped one point to 30 in February.

Prices

Prices of raw materials accelerated in February at an annualized rate of 2.09 percent, compared to 1.52 percent a month earlier. Prices of finished goods also increased more rapidly, rising at a 1.35 percent annualized rate, following January's 0.96 percent pace.

Looking to the next six months, survey participants expected input price growth at a 1.85 percent pace, slightly above the previous outlook for 1.75 percent annualized growth. Prices of finished goods were expected to increase at an annualized 1.41 percent rate, whereas in January, manufacturers anticipated 1.45 percent growth in prices received.

Index Table

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Regional Survey Team
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