Richmond Fed Manufacturing Activity Report Picks Up Pace

Fifth District manufacturing activity growth slightly picked up pace but remained moderate in May, according to the latest survey from the Richmond Fed, whose composite index rose 2 points to 5. Coming in at the low end of the range of Econoday forecasts, the rise in the index was driven by increases in the sub-components for shipments, up 4 points to 2, volume of new orders, up 2 points to 0, and backlog of orders, up 8 points to minus 4. Employment remained stable, declining marginally to 17.

Most of the twelve sub-components in current business sector activities showed some improvement, notably capacity utilization, rising 5 points but remaining in contraction at minus 2, capital expenditures, up 3 points to 16, and inventories of raw materials as well finished goods, up 13 points to 37 and up 3 points to 26 respectively. Vendor lead time, however, fell 13 points to 0 and local business conditions declined 9 points to 2.

Within employment, the average workweek recovered after falling into contraction in April, with the sub-component rising 12 points to 1. The persistent lack of available skills became even more acute in May, falling 12 points to minus 20. Wages, which weakened slightly in the previous month, sharply rebounded, increasing by 13 points to 38.

On the inflation front, prices paid and prices received grew at a slower pace in May, with input price growth continuing to outpace output prices. Firms expect prices to increase at slightly faster pace on both fronts in the near future.

Looking ahead, firms reported growth in spending and positive overall business conditions and remained optimistic though slightly less so than previously about growth in the coming months.