This is one of a series of regional indices put out by the 12 Federal Reserve Banks. This index is a broad gauge of activity in the manufacturing sector of the Mid-Atlantic region of the country. It represents a weighted average of the shipments, new orders and employment indexes and is based on surveys of from 80 out of 110 firms. In general the Federal Reserve Bank indexes are a relatively inexact gauge of overall economic activity as they focus mainly on larger companies, but they can be useful for spotting inflection points in the economy.
According to the Bank, manufacturing activity in the region pulled back in April after growing at a slower pace in March, driven by weak readings for factory shipments and volume of new orders. Manufacturers did continue to hire, however at a pace below March’s rate. Other indicators also suggested weaker activity. Manufacturers in April were also less optimistic about their future business prospects. An increasing number of contacts anticipated slower growth across the board for all indicators of activity six months from now. In addition, manufacturers’ hiring plans were also less optimistic in April. The index for expected manufacturing employment sank sixteen points to finish at a reading of 0 – no net hiring, although the index for expected wages grew by one-fifth. All in all, the Richmond survey pointed to a manufacturing sector that was flat-lining after experiencing a fairly strong rebound from the depths of the recession.
While these regional surveys are not great gauges for predicting future economic activity, the overall trend in the US economy is toward zero growth. Note that this is not necessarily recessionary – the economy is not contracting – but rather the economy is entering a kind of static state. Growth is matching population growth rates, so the overall per-capita GDP is holding steady.
It is not necessary for an economy to grow for life to be improving for a country’s citizens. For example, in a country like Japan or Italy, prosperity could rise even though the economy may be shrinking. This is because these countries are experiencing a declining population so the per capita GDP is still rising. Another example of how life can be improving in a zero growth economy is when there are substantial externalities that are being corrected. If (as in the case of China) economic growth is occurring in line with increasing levels of pollution, it is possible that environmental regulations that hamper economic growth may also be improving the overall living environment. This happened in America in the 1970s when very large environmental gains were achieved with little cost.
Today’s regulatory environment is different. With the low hanging fruit gone, today’s regulations lead to very small benefits with much higher economic costs. This regulatory overhang is a big reason why economic growth has slowed so much in America over the past decade. Simply put, the incentives are for people, businesses and government to consume resources, not to invest and produce new ones. Much like a farmer who eats his seed corn, American consumption was driven by borrowing from future production – that is future GDP growth.