Richmond Fed manufacturing activity expands at slower pace in August

PCE Price Index: In July, the PCE price index, the preferred inflation gauge for the Federal Reserve, increased 0.2% over the month and 3.7% over the year, unchanged from the 3.7% year-over-year increase in June. Prices for goods declined 0.1%, while prices for services stepped up 0.3%. Within the goods category, gasoline and other energy goods prices fell 2.7%, while prices for recreational goods and vehicles grew 1.1%. When excluding food and energy, the core PCE price index increased 0.2% over the month and 3.3% over the year, a similar rise as in May and lower than the overall inflation rate.

Among its components, shipments rose from 8 in July to 11 in August, while new orders stepped down from 5 to 3. The index for employment turned negative, falling from 2 to -2, while the index for vendor lead times edged down from 17 to 16. At the same time, the average growth rate of both prices paid and prices received accelerated in August.

Looking ahead, firms expected that prices paid and prices received would increase at a slower pace over the next 12 months. Expectations for future shipments decreased from 33 to 26, while expectations for new orders inched up from 31 to 32. Expectations for backlogs stayed the same at 6. Meanwhile, firms’ expectations about equipment and software spending turned positive, moving up from -5 to 2. In sum, businesses in the Fifth District are slightly less optimistic about future business conditions and more optimistic about future investment plans.