Manufacturing activity held steady in July despite slowing new orders

Activity in the manufacturing sector was generally little changed despite a pullback in some gauges according to the Richmond Fed's latest survey results. Shipments from District manufacturers barely increased, while the growth of new orders eased further, and backlogs declined. Capacity utilization grew at a faster pace last month and vendor lead-time grew more slowly. In labor markets, manufacturing employment declined modestly; the average workweek was unchanged; and wage pressures grew more rapidly. Looking forward, most respondents remained optimistic regarding the economic outlook and they expected new orders and backlogs to pick up in coming months.

On the price front, raw materials and finished goods prices grew at a slightly slower pace. Six months from now, respondents look for raw materials prices to grow at about the same pace as last month. In contrast, they expected finished goods prices to grow somewhat more quickly.

In July, the seasonally adjusted shipments index was virtually unchanged at 3, while the new orders index edged down five points to settle at 9. The backlogs index turned negative, moving down eleven points to -4. The capacity utilization index posted an eight-point gain, while the vendor lead-time index dropped ten points to 2 from 12. Manufacturers' inventories changed little compared to last month's levels. The finished goods index rose three points and the raw materials index fell two points to settle at 33 and 22, respectively.

Manufacturing employment edged lower. Respondents indicated that labor markets remained very tight. One contact said that hiring had become easier as his firm had raised wages recently. Nevertheless, the July employment index lost four points from -1 to -5, and the average workweek index was flat. Manufacturers reported that the wage index increased from 18 to 27.

Contacts were generally more optimistic about their business prospects for the coming six months. Although the expected shipments index edged down three points (from 34 to 31), the expected orders index gained eleven points to settle at 27. In addition, the backlogs index jumped twelve points to end at 14. The capacity utilization index again fell, losing ten points to 18. Vendor lead-time grew at a constant rate, while the planned capital expenditures index plummeted fifteen points to 4.

Respondents' views of future employment conditions were mixed in July. The index for expected manufacturing employment was up marginally to 11 from 10, while the expected workweek index nose-dived twenty points to 2 from 22. The expected wages index inched up to 35, as producers looked for wages to rise slightly faster than they last reported.

Manufacturers reported that the prices they pay increased at an average annual rate of 2.46 percent in July compared to June's level of 2.64 percent rate. The finished goods price level decreased in July, edging down a miniscule -0.11 percent. Looking ahead, respondents expected the prices they pay to increase at an average annual rate of 2.48 percent during the next six months, and they looked for finished goods prices to increase at a rate of 1.46 percent. Last month producers had expected increases of 2.46 percent and 1.02 percent, respectively.

All firms surveyed are located within the Fifth Federal Reserve District, which includes the District of Columbia, Maryland, North Carolina, South Carolina, Virginia, and most of West Virginia. 

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