Region's manufacturers expect less growth

August 24, 1994|By Bloomberg Business News

WASHINGTON -- Mid-Atlantic manufacturers see a modest upturn in the rate of inflation and slower economic growth, according to a Richmond, Va., Federal Reserve Bank report yesterday.

That fits in with Federal Reserve Board Chairman Alan Greenspan's view that interest rate increases engineered by the Fed are succeeding in slowing the economy's expansion and curbing accelerating inflation.

Manufacturers surveyed in the Richmond Fed's region, which includes Maryland, said they expect prices of their finished goods to rise at a 1.4 percent annual rate from July to January, the report said. Although low by historical standards, the rate is up from the 0.8 percent inflation pace that producers expected in the survey last month.

The manufacturers said they saw prices for the raw materials they buy rising faster, at a 2 percent clip, meaning their profits may be squeezed.

"Respondents indicated that they expect manufacturing-industry prices to rise faster in the next six months than they had expected in June," the Fed survey said.

Nationwide, producer prices rose at a 2.2 percent annual rate in the first seven months of 1994, after inching up just 0.2 percent for all of last year. Retail prices increased 2.7 percent last year and continued to rise at that same rate in the first seven months of this year.

Finished goods prices in the mid-Atlantic region last month increased at a 0.6 percent annual rate, double the pace in June, while raw materials prices increased three times as fast, at a 2 percent rate in July. That again signaled that profits are being curbed by an inability of manufacturers in the region to pass through increased raw materials prices by increasing the amount they charge for finished goods.

U.S. makers are unable to increase prices at will because they face tough foreign competition, Mr. Greenspan said several times over the past year.

While prices rose at a faster clip in July than in June, the 149 respondents to the Richmond Fed's survey indicated that the growth in their output is slowing. "Manufacturing-sector growth slowed in July," the report said.

Manufacturers who expect to increase the volume of goods by January slightly outnumber those who expect to ship fewer wares. Some 29 percent expected to increase their shipments of goods, 21 percent saw shipments declining, and half expected the same level of shipments in January as in July. Last month, almost twice as many companies saw shipments increasing, compared to those expecting declines.

One bleak note was in the outlook for job-seekers.

Just 19 percent of manufacturers said they hired more people last month, while 10 percent laid off employees. The remaining companies didn't change their payroll strength. But that shows a bit more demand for labor than the prior month's survey.

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