Manufacturing activity in the Fifth District slowed slightly but remained solidly in expansionary territory in July, with the Richmond Fed Manufacturing Index slipping to 20, down just 1 point from June's upwardly revised reading and in line with most expectations. Leading the index lower were declines in the employment indices: the number of employees was down 1 point to 22, wages fell 5 points to 22, available skills were down 3 points to a minus 16, and the average workweek fell 1 point to 10. Shipments also contributed to the overall decrease by falling 1 point to 16.
Though continuing strength was seen in the important new orders measure, which held steady at 22, demand pressures lessened to the point that companies were able to fill existing orders and the backlog of orders fell by a sharp 16 points to 4. Capacity utilization also fell sharply by 12 points to 8, while vendor lead time eased by 1 point to 17.
But inventory components strengthened, with finished materials up 8 points to 10 and raw materials up 1 point to 20. Local business conditions also improved, gaining 5 points to 18, and while capital expenditures fell 1 point to a still strong 25, equipment and software spending was up 1 point to 18 and services expenditures were up 5 points to 6.
Manufacturers reported continued acceleration in price increases, both in prices paid and prices received, though the former outpaced the latter with a 3.54 percent annualized rate versus 2.24 percent. Respondents expect price growth to accelerate further for prices paid while they anticipate a slowing in the growth of prices received.
Together with other strong regional manufacturing reports, the Fifth District's persistent strength along with price acceleration in July should bolster the case for further tightening by the Fed.