- The Washington Times - Tuesday, January 14, 2003

RICHMOND, Va., Jan. 14 (UPI) — The Federal Reserve Bank of Richmond said Tuesday manufacturing activity was steady in December, shipments edged lower but new orders grew for second month.

Manufacturing activity was relatively flat in December, though encouraging signs continued, results from the Richmond Fed's latest survey showed.

Although factory shipments edged lower, the regional Fed said the volume of new orders showed modest growth for the second month.

In addition, raw materials inventories barely moved from November levels, there was less weakness in orders backlogs and no change in capacity utilization.

On a weaker note, however, the Fed said vendor lead-time turned negative. Also, employment conditions continued to contract at district plants, though at a more moderate pace.

The regional central bank said indexes for employment and the average workweek contracted, but at slower rates than in November, while wages advanced somewhat more quickly.

"Despite the current flatness in manufacturing activity, respondents continued to be generally optimistic-particularly about prospects for shipments, new orders and capital expenditures," the Richmond Fed said.

Price increases at district plants remained modest in December. Both raw materials and finished goods prices grew at a slightly faster pace.

The Fed said for the next six months, respondents looked for raw materials prices to increase modestly and finished goods prices to grow at a slightly slower rate.

In December, the seasonally adjusted shipments index was nearly flat, registering a minus-3 compared to minus-1 in November.

The new orders index remained in positive territory for a second month, matching November's index of 4. In addition, although the orders backlogs index stayed in negative territory, it recouped 6 points to finish at minus-8 in December.

The capacity utilization index was unchanged at minus-12 in December. Vendor lead-time, however, went from positive to negative territory, losing 4 points to finish at minus-2.

Manufacturers' inventories changed little compared to last month's levels. The finished goods index was unchanged at 25 and the raw materials index slipped one point to end at 18, slightly below its three-month average of 19, the regional Fed said.

Manufacturing employment contracted at a more modest pace in December. The employment index recovered four points from minus-18 to minus-14, and the average workweek index picked up fourteen points to minus 4. Wage growth advanced at a slightly faster pace than in the previous month, the index added seven points to reach 11.

The Fed said expectations for manufacturing growth continued to be favorable, and firms were generally more optimistic about business prospects for the coming six months. The expected shipments index improved by three points to end at 42 and the expected orders index jumped 9 points to 53.

In contrast, the expected orders backlogs index edged down 2 points to 27 and the capacity utilization index slipped three points to 38. Plans for capital expenditures remained positive for the 12th consecutive month; December's reading of 17 was slightly higher than the three-month average of 16.

Respondents' views of future labor needs were little changed from November. The index for expected employment held constant at 8, while the expected workweek index picked up four points to 22.

The report showed manufacturers reported that the prices they paid increased at an average annual rate of nearly one-percent in December compared to the previous month's 0.5-percent rate. Finished goods prices rose at an average annual rate of 0.07 percent in December compared to dropping 0.16 percent in November.

Looking ahead, respondents expected the prices they pay suppliers to increase at an annual rate of 1.48 percent during the next six months, and they looked for finished goods prices to move up at a rate of almost one-percent. Last month producers had expected increases of 1.35 percent and 1.07 percent, respectively.

All firms surveyed by the Fed are located within the Fifth Federal Reserve District, which includes the District of Columbia, Maryland, North Carolina, South Carolina, Virginia and most of West Virginia.




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