Manufacturing Activity Pulls Back in Richmond Regi
Washington, DC, December 26, 2006--Manufacturing activity in the central Atlantic region contracted modestly in December, according to the Richmond Fed’s latest survey.
Factory shipments, new orders and employment edged into negative territory following a pickup in November. Order backlogs continued to move lower and delivery times flattened. Consistent with slower activity, manufacturers reported capacity utilization reversed its positive trend seen in recent months. In addition, manufacturers reported somewhat quicker growth in raw materials inventories.
District manufacturers’ expectations remained generally optimistic in December. Firms anticipated solid growth in their shipments, new orders and capacity utilization for the coming six months.
Both raw materials and finished goods prices grew at a quicker pace in December. Looking ahead, respondents expected raw materials prices to rise faster over the next six months.
In December, the seasonally adjusted manufacturing index—the broadest measure of manufacturing activity—decreased to -6 from November’s reading of 7. Among the index’s components, shipments lost ten points to -4, new orders fell fourteen points to -8 and the jobs index moved down fifteen points to -5.
Other indicators also suggested weaker activity. The capacity utilization index turned negative, losing twelve points to finish at -11 and the orders backlogs indicator shed five points to -16. Vendor delivery times edged down three points to -1, while our gauge for raw materials inventories was somewhat higher, gaining six points to 20. The finished goods inventories index, however, trimmed three points to 12.
Labor market activity weakened at District plants in December. The employment index registered a -5 versus November’s 10, and the average workweek dropped nine points to -8. In addition, wage growth declined two points to 8.
In December, our contacts remained generally positive about their business prospects for the coming six months. The index of expected shipments eased five points to 30, and the new orders indicator lost seven points to end at 26. The orders backlog index fell eight points to 9; the vendor delivery times gave up four points to 3; and planned capital expenditures slipped two points to 24. In contrast, capacity utilization registered a six-point gain to end at 26.
Manufacturers’ plans for hiring in coming months were little changed from our last survey. The expected manufacturing employment index was almost unchanged at 7 and the average workweek slipped three points to finish at 8. The expected wage index, however, posted a seven-point gain to 37.
In December, District manufacturers reported that raw materials prices increased at an average annual rate of 3.44 percent—a sharp pickup from November’s reading of 2.68. Finished goods prices rose at a 2.59 percent pace compared to November’s reading of 2.29 percent. Looking ahead to the next six months, respondents expected the prices they pay to advance at a 3.68 percent pace compared to November’s reading of 3.55 percent.
Lastly, contacts looked for finished goods prices to advance at a 2.02 percent annual rate compared to last month’s 2.19 percent pace.
