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 regional 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 central Atlantic region grew moderately in July, as did manufacturing employment even though growth in the average workweek slowed slightly. Overall, current manufacturing conditions strengthened, with most of the indices rising. However, new orders grew at the same pace as a month ago, and order backlogs and capacity utilization are falling which suggests that there may be some weakness in the future. The index for both employment and wages grew fairly strongly.
That said, manufacturers in July were very optimistic about future conditions, as the index for expected shipments finished 12 points above last month at a reading of 36. Survey participants also expected faster growth in new orders, as well in in backlogs. The index for capital spending was also up as were expectations about capacity utilization. Firms were also expecting to increase hiring in the next few months with that index gaining seven points to finish at 19.
While these regional surveys are not great gauges for predicting future economic activity, and after a rough 6 months, the economy did grow in the 2nd quarter, and manufacturing growth has been a leader in the recent economic recovery. That said, manufacturing may provide substantial economic output, but it is not the jobs engine that it once was. In fact, manufacturing employment stood at 18.8 percent of total private employment at the turn of the century and was down to 13.8 percent in the latest numbers.
So while it is good to see the manufacturing sector thriving, this does not necessarily translate into more jobs. That said, increased production and productivity do power future growth, and with the next recession not all that far away, the economic engine of the manufacturing sector will be one of the key drivers in the coming months.
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