Manufacturing activity in the Mid-Atlantic region of the country improved this month, according to a new report from the Federal Reserve Bank of Richmond. Shipments, new orders, capital expenditures, employment, and hours worked all increased in June, while gauges of capacity utilization, wages, and inflation worsened. Similarly, manufacturing activity in the southern region of the country expanded at a faster pace in June, according to new data from the Federal Reserve Bank of Dallas (FRBD). Specifically, the 11th Fed district’s general business activity index rose from 26.8 to 36.5 this month, significantly better than expected and the largest monthly gain since December.
Under the hood, measures of new orders, wages, employment, and capital expenditures all improved in June, which helped offset the declines in production, capacity utilization, and shipments. Margin strain also remained elevated this month, as input costs continued to rise faster than prices received. Altogether this depicts a slightly more discouraging business climate than the headline numbers might suggest, and the uncertainty surrounding U.S. trade policy is not helping. In fact, surveyed manufacturers this month across a broad array of sectors expressed their growing frustration with the tariffs and still avoidable trade war:
- Steel tariffs to NAFTA partners is a mistake. Higher steel prices could slow down strong projects and the manufacturing recovery which started in fourth quarter 2017.
- We are about to raise prices for the first time in six years due to the rising cost of steel and aluminum. That is going to cause some uncertainty, with our customers looking elsewhere to purchase the products we manufacture.
- Inflationary pressures are of concern. Freight costs per mile are up. Metals are costing more, impacting a large number of purchased parts. Tariff escalation is not going to help.
Sources: Econoday, FRBR, FRBD, ZH, FRBSLPost author: Charles Couch