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Manufacturing activity in the Fifth District deteriorated in August, but at a slower pace than the previous month, with the composite manufacturing index rising from -20 to -7. Meanwhile, the local business conditions index improved, increasing from -11 in July to 0 in August. On the other hand, manufacturers are still pessimistic about the future, and more so than in the prior month, with the outlook for future local business conditions declining from -2 in July to -10 in August. The Fifth Federal Reserve District consists of Virginia, Maryland, the Carolinas, the District of Columbia and most of West Virginia.

Among its components, shipments, new orders and employment all remained negative but contracted at a slower pace than in July, climbing to -5, -6 and -11, respectively. The vendor lead time index increased from 7 to 11. The share of firms reporting backlogs improved but remained negative, rising from -30 to -12. Meanwhile, the average growth rate of prices paid rose notably, while prices received declined slightly.

Looking ahead, firms expect the growth rate of prices paid to remain elevated and anticipate the growth rate of prices received to rise in the next 12 months. Expectations for future shipments increased from 11 to 13, while new orders stayed the same at 9. Expectations for backlogs worsened slightly, moving from -9 to -10. Meanwhile, firms maintained a cautious approach to equipment and software spending. Expectations for capital expenditures improved to -15 from -19. In sum, businesses in the Fifth District are cautiously optimistic about prospects for future growth but are still avoiding making new investment plans.

Manufacturing activity was mostly unchanged in the Tenth District in August, with the month-over-month composite index at 1, the same as July. Meanwhile, expectations for future activity remained expansionary, rising 3 points to 11. The Tenth Federal Reserve District encompasses the western third of Missouri; all of Kansas, Colorado, Nebraska, Oklahoma and Wyoming; and the northern half of New Mexico. Durable manufacturing activity was relatively flat month-over-month, while nondurable manufacturing activity declined slightly. New orders increased modestly, while production ticked up. Shipments rose, and at a faster pace than the prior month, rising from 3 to 6.

Production improved from -3 to 0, while new orders inched up from 2 to 5. New export orders remained negative, staying the same at -15. Employment remained flat in August, rising from -11 to 0, and the average employee workweek turned positive, increasing from -9 to 3, indicating more hours worked. Backlog of orders remained negative but improved from  -30 to -15. Prices received for finished product grew from 18 to 21, while prices paid for raw materials eased month-over-month, slipping from 47 to 43. Over the year, both prices received and prices for raw materials rose from 58 to 61 and from 67 to 69, respectively.

In July, survey respondents were asked about changes in purchasing activity and product demand expectations, and the responses were mixed. Thirty-six percent of firms reported slight decreases in purchase volumes compared to the previous quarter, while 9% noted a significant decline. Meanwhile, 17% cited no change and 34% reported a slight increase. Just 3% of respondents noted a significant increase. When firms were asked about customer purchases and services, 34% reported a slight decrease, while 27% noted no change. On the other hand, 24% cited a slight increase in customer purchases, while 2% reported a significant increase. Conversely, a higher share (13%) noted a significant decrease.

In August, Texas factory activity continued to expand but at a slower pace than the prior month. The production index fell from 21.3 to 15.3 but remained well above average. Meanwhile, other measures also indicated solid growth. The new orders index turned positive for the first time since January, advancing 9.4 points to 5.8. Capacity utilization slipped 3.6 points to 13.7 but remained elevated, while shipments jumped 11.5 points to 14.2.

Perceptions of manufacturing business conditions worsened slightly in August, with the general business conditions index declining nearly 3 points to -1.8, while the outlook improved but at slower pace, with the company outlook index dropping 1.4 points to 3.3. Meanwhile, the uncertainty index, alternatively, climbed more than 7 points to 18.3, above the series average of 17.2.

Labor market indicators suggested an increase in headcounts and longer workweeks in August, with the employment index inching up 0.4 points to 8.8, while the hours worked index surged to 15.0 from 7.7. Twenty percent of firms reported net hiring, while a smaller percentage (11.2%) noted net layoffs.

Historically high upward pressure on prices accelerated in August, while wage growth also quickened. The prices paid for raw materials index increased slightly, from 41.7 to 43.7. Meanwhile, the prices received for finished goods index rose 4.0 points to 15.1. The wages and benefits index edged up 2.2 points to 15.4 but stayed below the series average of 21.0.

The outlook for future manufacturing activity strengthened from July, with the future production index soaring from 30.3 to 40.4. Furthermore, the future general business activity index and the future company outlook index both improved, rising to 24.8 and 26.8, respectively.

The NFIB Small Business Optimism Index ticked up 1.7 points to 100.3 in July, remaining above the 51-year average of 98. July’s increase stemmed primarily from an improvement in business conditions and reports that it was a good time to expand. Of the 10 components included in the index, six increased, two decreased and two stayed the same. Meanwhile, the Uncertainty Index rose eight points to 97, indicating a notable worsening of small business uncertainty and remaining well above the 51-year average (68) and the average since 2016 (80).

Labor quality ranked first in the list of concerns for small business owners in July, with 21% reporting it as the most important problem, up five points from June. On the other hand, fewer small business owners reported jobs they could not fill in July, down three points from June to 33%. Following the passage of the tax bill, taxes fell in the rankings of top small business concerns in July to second after being the top concern in June, with 17% reporting them as their most important problem, down two points from the month prior. Inflation and poor sales tied for third in the list of concerns, with 11% reporting it as a top concern.

A net 27% of small business owners reported raising compensation, down six points in July after jumping seven points in June. Meanwhile, just 17% of small business owners plan to increase compensation in the next three months, down two points from June. The cost of labor on inflation is easing, but profitability remains under pressure, with a net negative 22% reporting positive profit trends, the same percentage as in June. Of those reporting lower profits, 34% claimed weaker sales, 13% cited increased material costs and 11% claimed labor costs. A net 24% of small business owners planned price hikes in July, down five points from June but remaining above the average of net 13%. Meanwhile, 4% reported their last loan was harder to get than previous attempts, down one point from June, and a net 5% of owners reported paying a higher rate on their most recent loan, down four points from the prior month.

The outlook for general business conditions soared fourteen points to 36%, a very positive reading by historical standards. Additionally, the share of firms saying it is a good time to expand rose five points to 16% in July. With the Uncertainty Index at elevated levels, tariffs, inflation and geopolitical tensions all remain sources of doubt influencing hiring, pricing and investment decisions. Small businesses are hopeful that the next six months will provide some clarity to these issues, which would provide an incentive to invest.

U.S. import prices increased 0.4% in July, after slipping 0.1% in June, with both higher nonfuel and fuel prices driving the increase. Over the past year, import prices decreased 0.2%. Meanwhile, U.S. export prices ticked up 0.1% in July, with nonagricultural export prices driving the increase. Over the past year, export prices increased 2.2%.

In July, U.S. import prices for manufacturing rose just 0.2% over the year, but with significant divergences in prices across the industry. Petroleum and coal products manufacturing experienced the most significant over-the-year U.S. import price declines in July, falling 12.9%. On the other hand, the greatest yearly increase in U.S. import prices occurred in primary metal manufacturing, which rose 10.0% from July 2024. Meanwhile, U.S. export prices for manufacturing in July increased 2.8% over the year, with primary metal manufacturing export prices exhibiting the largest rise (26.3%).

Fuel import prices rose 2.7% over the month in July, following a 0.8% increase in June and a 5.0% decline in May. Higher prices for petroleum and natural gas drove the increase, rising 2.4% and 4.7%, respectively. Despite the over-the-month increase, prices for fuel imports plummeted 12.1% from July 2024. Import prices for petroleum fell 13.7% from last year. Meanwhile, natural gas prices jumped 62.2% over the year.

Nonfuel import prices increased 0.3% in July, following a 0.3% decrease in June. Higher prices for nonfuel industrial supplies and materials, consumer goods and capital goods more than offset lower prices for automotive vehicles and foods, feeds and beverages. The price index for nonfuel imports grew 0.9% over the past year and has not declined on a year-over-year basis since February 2024.

After rising 0.8% in June, agricultural export prices stayed the same in July. Over the past 12 months, agricultural export prices increased 3.4%. Meanwhile, nonagricultural export prices inched up 0.1% in July. Higher prices for capital goods, consumer goods and automotive vehicles more than offset lower prices for nonagricultural industrial supplies and materials. Over the past year, nonagricultural export prices advanced 2.0%.

Manufacturing activity in New York state grew modestly in August. The headline general business activity index strengthened from July, rising 6.4 points to 11.9. Meanwhile, the new orders and shipments indexes also increased, to 15.4 from -2.0 and 12.2 from 11.5, respectively. Unfilled orders improved slightly but remained negative, rising from -6.4 to -5.5, while delivery times lengthened from 8.3 to 17.4. Inventories declined notably, plunging from 15.6 to -6.4, but supply availability improved, rising from -11.0 to -5.5.

The index for the number of employees declined from 9.2 to 4.4, while the average employee workweek was relatively unchanged at 0.2. Input prices fell from 56.0 to 54.1, while selling prices also moderated slightly, edging down 2.8 to 22.9 points, a reflection of a slower pace of increase for prices received and prices paid.

Looking forward, firms’ expectations worsened but remained positive. The index for future business activity decreased 8.1 points to 16.0. In the next six months, new orders and shipments are still expected to increase, but at a slightly slower pace than anticipated last month, clocking in at 16.3 and 17.9, respectively. On the other hand, capital spending plans returned to negative territory, falling 10.1 points to -0.9.

Employment expectations remained but declined from 11.0 to 6.9, while the average employee workweek outlook strengthened, rising from -0.9 to 0. Input prices are expected to climb higher, rising from 58.7 to 64.2. On the other hand, selling price expectations ticked down 0.9 points to 41.3. Meanwhile, supply availability is still forecasted to contract in the next six months but at a slower pace than predicted in July.

Industrial production edged down 0.1% in July, while manufacturing output stayed the same as June. At 100.2% of its 2017 average, manufacturing production in July rose 1.4% from the same month last year. Capacity utilization for manufacturing dipped to 76.8%, down 0.1 percentage points from June but increased 1.2% over the past year. Capacity remains 1.4 percentage points below its long-term average from 1972 to 2024.

In July, major market groups posted mixed results. Consumer goods production increased 0.1%, while business equipment output rose 0.5%. Among consumer goods, the production of automotive products advanced 0.7%, while the index for appliances, furniture and carpeting decreased 1.5%. Among business equipment, the gain was supported by a 1.8% and 0.3% rise in the index for transit equipment and industrial and other equipment, respectively. On the other hand, the indexes for nonindustrial supplies and materials both declined 0.3%, led by a 2.0% decline in textile materials in July.

Durable goods manufacturing rose 0.3% in July and 2.7% from the year prior. Monthly growth was greatest for aerospace and miscellaneous transportation equipment (1.7%), while primary metals, machinery and motor vehicles and parts posted the largest declines at 0.3% each. Meanwhile, led by a 2.1% drop in textile and product mills output, nondurable goods manufacturing decreased 0.4% in July but rose 0.6% from July 2024.

The Producer Price Index for final demand (also known as wholesale prices) surged 0.9% over the month in July, the largest monthly jump since March 2022, after prices stayed the same in June. Over the year, producer prices moved up 3.3% in July, up from the 2.4% hike in June. Meanwhile, prices for final demand excluding foods, energy and trade services increased 0.6% over the month in July, after staying the same in June. Prices for these goods advanced 2.8% from July 2024.

Within final demand, prices for services advanced 1.1% in July, accounting for more than three-quarters of the headline increase. Meanwhile, prices for goods rose 0.7%. Over half of the increase in prices for services is attributed to a 2.0% rise in margins for trade services, indicating companies are absorbing a smaller percentage of those higher costs. Meanwhile, 40% of the increase in goods arose from the 1.4% gain in foods. Within the final demand goods index, prices for industrial material handling equipment climbed 0.6% over the month and 6.0% from July 2024. In addition, prices for private capital equipment for manufacturing industries jumped 4.4% over the year, the largest yearly increase since September 2023.

Processed goods for intermediate demand rose 0.8% in July, the largest rate of increase since January. Over half of the rise can be attributed to an 11.8% gain in the diesel fuel index. Meanwhile, the index for processed foods and feeds fell 0.1%. Over the year, the index grew 2.1%, the largest 12-month increase since the 2.1% rise in February 2023.

Meanwhile, prices for unprocessed goods for intermediate demand advanced 1.8% in July, after rising 2.6% in June. Nearly two-thirds of the July gain can be traced to a 2.9% hike in the prices for unprocessed foodstuffs and feedstuffs. Additionally, prices for unprocessed nonfood materials less energy rose 2.0

In July, consumer prices increased 0.2% over the month and 2.7% over the year, the same as the annual rise in June. Core CPI, which excludes more volatile energy and food prices, rose 0.3% over the month and 3.1% over the year, slightly higher than the 2.9% 12-month increase in the month prior.

Energy costs fell 1.1% over the month in July, after rising 0.9% in June, and declined 1.6% over the year. Within the energy index, gasoline prices plunged 2.2% from June, after increasing 1.0% the month prior, and declined 9.5% from July 2024. Meanwhile, electricity and utility (piped) gas prices dipped 0.1% and 0.9%, respectively, over the month, but surged 5.5% and 13.8% over the year.

In July, food prices stayed the same as June, with prices for food at home edging down 0.1%. On the other hand, food prices rose 2.9% over the year, with food at home advancing 2.2%. Meanwhile, prices for food away from home climbed 0.3% from June and 3.9% from July 2024. The indexes for major grocery store food groups were mixed, with two increasing, three decreasing and one staying the same.

The shelter index grew 0.2% over the month and 3.7% over the year, dipping slightly from the 3.8% 12-month increase in June. Meanwhile, prices for transportation services soared 0.8% over the month and 3.5% over the year, with airline fares leading the monthly increase, rising 4.0% from June. Motor vehicle maintenance and repair led the over the year increase, surging 6.5% from July 2024.

Both the headline inflation rate and core inflation rate have ticked up slightly from last year in recent months, but likely not enough to deter Federal Reserve officials from cutting their interest rate target later this year, particularly since weakness in the labor market has increased in recent months. Therefore, markets anticipate that the Federal Open Market Committee will lower its interest rate target by 25 basis points at its meeting next month.

Toyota has provided its manufacturing team members with high-quality childcare options for decades. This week, it announced a major expansion in its offerings, revealing plans for four new childcare centers for parents working at plants in North Carolina, Mississippi, Alabama and West Virginia.

How it works: The centers, which will all open by 2027, will be managed by third-party childcare providers and offer schedules that align with plant operations, so that team members can go to work confident that their children are well looked after.

• “At Toyota, we know it is paramount for working parents to have access to quality childcare, and manufacturing is not always a nine-to-five job,” said Denita Neville, vice president of Toyota’s corporate shared services.
• “Offering childcare motivates and empowers our team members, makes our industry more inclusive and helps our smallest learners of today become our biggest leaders of tomorrow.”

A long history: These four new centers will join two other facilities that have been in operation for years.

• Toyota’s Georgetown, Kentucky, plant has offered round-the-clock childcare since way back in 1993. Its Indiana center is also well-established, having opened its doors in 2003, and is undergoing an expansion that will be completed this September. (Check out our previous article on these centers here.)

• All of Toyota’s sites are or will be accredited by the National Association for the Education of Young Children, which establishes standards for high-quality childcare.

Other offerings: Toyota also provides other childcare options, partnering with Bright Horizons to help team members find regular childcare and backup options for emergency care, among other services.

Rave reviews: “As a working mom, it’s been such a relief to have childcare that supports my work schedule,” said Patricia Pastrana Arroyo, a group leader at Toyota Indiana, said about the Indiana center.

• “The early education program is exceptional. The teachers are nurturing, attentive and genuinely caring toward each child. They keep parents informed with daily reports, pictures and updates, which helps me feel connected to my son even when I’m not there.”

Partnering with the MI: As an active partner of the Manufacturing Institute, the NAM’s workforce development and education affiliate, Toyota has contributed to the MI’s efforts to bolster the manufacturing industry’s childcare offerings.

• Mazda Toyota Manufacturing, a joint venture between Mazda Motor Corporation and Toyota Motor Corporation, helped the MI formulate its influential whitepaper about childcare in the industry, “Flexibility Approaches for Manufacturing Production Workers,” which found that companies that provided workers with the flexibility to meet personal obligations, such as child care, reported greater success.
• Toyota also participated in an MI panel for manufacturing workforce leaders interested in expanding their own companies’ benefits.

The last word: “Toyota’s investment in childcare sets a powerful example of how manufacturers can meet the real needs of their workforce,” said MI President and Executive Director Carolyn Lee.

• “Access to quality, flexible childcare not only supports working parents, it strengthens our industry’s ability to attract and retain talent. By removing one of the biggest hurdles to workforce participation, Toyota is helping to ensure that more people can build meaningful, long-term careers in manufacturing.”