Manufacturing activity in the northeast region of the country cooled in April, according to new data from the Federal Reserve Bank of New York. Specifically, the general business conditions index fell from 22.5 to 15.8 this month, significantly worse than anticipated but still well above pre-election levels. Under the hood, measures of new orders, shipments, unfilled orders, and total employment all deteriorated in April, but hours worked rose (due to continued capacity constraints) and profit margins improved slightly. Forward-looking (six months ahead) activity gauges were much weaker in April, including continued declines (albeit from record levels) in capital expenditure and technology spending plans.
Slightly more encouraging was the latest report on manufacturing activity in the Mid-Atlantic region of the country from the Federal Reserve Bank of Philadelphia (FRBP). Specifically, the general business conditions index increased from 22.3 to 23.2 in April, better than expected and helped by solid gains in employment and hours worked. Gauges of new orders and shipments, though, softened in April, and inflation pressures intensified as prices paid continued to rise faster than prices received. On the bright side, optimism about the future remains elevated, as nearly 50 percent of the surveyed managers said that they expect increases in activity over the next six months. Further, many manufacturers said that they plan to spend more on computers, software, structures, noncomputer equipment, and energy-saving investments this year than they did in 2017, with recent tax reform frequently cited as an impetus. However, a majority of surveyed managers said that such spending will likely occur in the second half of 2018, meaning than any resulting boost to U.S. gross domestic product (GDP) may not show up until then.
Sources: Econoday, FRBNY, FRBP, FRBSLPost author: Charles Couch