October 2008 - MID-ATLANTIC MANUFACTURING OVERVIEW
The Federal Reserve Bank Beige Book that was released July 23 highlighted that economic activity has slowed nationally in the face of commodity price inflation and other input price pressures, particularly in fuel, petrochemicals, metals and food. Reports from the Northeast and Mid-Atlantic regions were mostly on par with national averages. In the Mid-Atlantic and Northeast regions, covered by the Federal Reserve Banks of Philadelphia, New York, Boston and Richmond, manufacturing activity remained steady or declined slightly. A weak dollar supported a rise in exports of manufactured goods to some of the highest levels seen in years. Most manufacturer surveys also reported plans by businesses to increase selling prices as a result of higher input costs. However, despite elevated raw material prices, retail prices have varied across the region, with the Beige Book reporting price stability in some regions, as retailers have refrained from or have been unable to pass on price increases to consumers already burdened by steep increases in energy and fuel costs.
The reports for higher input price pressures for manufacturers across the region indices climbed an average of 160 percent for the New York and Philadelphia regions and 35 percent for the Richmond region. Note that the Richmond Federal Reserve uses a different method to calculate the index. Also, the indices are meant to be coincident indicators derived from survey responses and should not be construed as being equal to any form of actual producer or consumer price inflation.
Manufacturing exports from the Northeast and Mid-Atlantic regions have consistently grown at a slightly faster pace than the national average over the past five years. Export growth rates peaked in 2006 but continued to grow more than 10 percent in 2007. In the first quarter of 2008, the region’s manufacturing exports increased 21 percent over the first quarter of 2007, compared with a 14 percent increase at the national level. A continued weakness in the dollar has fueled much of this export momentum. The Mid-Atlantic region has exhibited the strongest growth in manufacturing exports over the last three years, clocking a 15 percent compound annual growth rate (CAGR) between 2004 and 2007.
Primary metals have been the strongest driver in the region’s manufacturing export gains. Exports of primary metals have grown at a 23 percent CAGR over the last five years and now constitute more than 11 percent of the total regional exports globally. China, again, has driven the export gains, growing at a 36 percent CAGR over the last five years. The major components of manufacturing exports from the region to all countries, and specifically to China.
Other sectors of Northeastern and Mid-Atlantic manufacturing showing strong growth in exports were electrical equipment, fabricated metal products, machinery and chemicals. Petroleum and coal products, although not a major component of overall exports, have grown at 47 percent CAGR over the past five years. Large reserves of coal in the region and throughout the United States, combined with dramatic price increases, make it likely that mining exports will continue to increase rapidly.
Growth in real GDP
The latest estimates by the Bureau of Economic Analysis (BEA) showed the overall U.S. economic growth, as measured by the change in gross domestic product (GDP), slowed to a 2 percent rate between 2006 and 2007. Most Mid-Atlantic states, along with Massachusetts and Connecticut, came within the fourth or third quintile. New York and the District of Columbia registered strong growth in gross state product, at an average of 4.3 percent. The remainder of the states mostly fell in the second quintile, with the exception of New Hampshire and Delaware, which reported contraction in their respective state products. In Delaware, the BEA attributes the shrinkage primarily to a large decline in the financial sector and secondarily to a decline in construction. In New Hampshire, declines in these industries and in real estate, rental and leasing were largely responsible for the decreases in real gross product.
An analysis of the contribution of durable goods manufacturing to the gross state products of individual states highlights an important distinction for the sector. On average, durable goods manufacturing contributed 26 percent of the growth in GDP for the New England region and 24 percent for the Carolinas. The sector’s strong contribution was especially important in providing a backstop in the case of New Hampshire and Delaware, whose gross state products declined 0.1 percent and 1.6 percent, respectively.
The national non-farm unemployment rate jumped 0.5 percentage point in May to reach 5.5 percent, but it remained steady for June, according to data by the Bureau of Labor Statistics. Similar to the trends seen for the Southern and Southeastern regions in the July Regional Manufacturing Outlook, most states in the Northeastern and Mid-Atlantic regions saw a year-over-year increase in unemployment that came in on par with the national level. However, unlike some of the Southern states that saw decreases in unemployment rates over the past year, all states in the Northeast and Mid-Atlantic region reported increases in non-farm unemployment.
Rhode Island, the Carolinas and the District of Columbia registered the highest unemployment rates, at an average 6.5 percent. Over the 12 months ending June 2008, the largest increase in non-farm unemployment was seen in Rhode Island, with a 2.5 percent increase from 5 percent in June 2007. In most states, manufacturing employment shrunk between 1 percent and 3 percent, with the exception of a 5.6 percent drop in Rhode Island and a 0.75 percent rise in New Hampshire. Along with the severe housing construction downturn across the country, this can be attributed to a decline in the general manufacturing footprint of the region. In spite of these challenges, states like Delaware, Maryland, New Hampshire and Virginia maintained their relatively low unemployment rates at an average 4 percent level. MM
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