Tuesday brought yet another weak economic reading. The Federal Reserve Bank of Richmond reported that manufacturing activity in the nation’s Fifth District slowed in February.
A reading of -4 was noted in February, with readings above zero representing growth and readings under zero contraction. Its figure for January was left unrevised at 2.
Shipments and the volume of new orders have decreased modestly this month. Hiring in the manufacturing sector continued to increase at a modest pace, while average wages grew mildly and the average workweek lengthened slightly. Prices of raw materials and finished goods have risen at a slower pace in February over January.
What was interesting about this report was that manufacturers were shown to have remained upbeat about future business conditions despite the current softness in manufacturing conditions. Expectations were said to be for solid growth in shipments and in new orders in the six months ahead. Firms also expected an increase in capacity utilization and anticipated rising backlogs — all with shorter vendor lead times.
Producers expected faster employment growth and moderate growth in wages during the next six months. Survey participants looked for modest growth in the average workweek. Looking ahead, manufacturers anticipated faster growth in prices paid and prices received.
Looking ahead six months, producers remained upbeat about business conditions and manufacturers expected solid growth in shipments and in the volume of new orders. Overall index levels were as follows in the current activity and in the expectations ahead:
- New orders and shipments decreased this month, at −6 and −11, respectively.
- Manufacturing employment grew at the same pace as a month ago as the index remained at 9.
- Backlogs decreased in February, with the index ending 18 points lower at −14.
- Capacity utilization fell to −5.
- Vendor lead time lengthened slightly by rising two points to end at 6.
- Finished goods inventories rose at a moderate pace in February, but that was down four points at 20.
- Raw materials inventories also rose at a moderate pace, reaching a reading of 36.
- The indexes for expected shipments and new orders ended at 31, compared to January readings of 34 and 28, respectively.
- Firms continued to expect backlogs would increase at a faster pace in the months ahead and the outlook index remained at 13.
- Manufacturers expected vendor lead times would shorten slightly, as the outlook index fell to 4.
- Capital spending is expected to grow at about the same pace as last month’s expectations, with that index up three points to 25.
- The index for future capacity utilization fell by a sharp 12 points, but this index was still up at 17.
The Richmond Fed covers the Fifth Federal Reserve District, which includes Maryland, North Carolina, South Carolina, Virginia, most of West Virginia and the District of Columbia.