Manufacturing production contracted for the second straight month, declining 0.5 percent in both May and June, according to Chad Moutray, Ph.D. and Chief Economist at the National Institute of Manufacturers (NAM). As such, the solid gains in output seen in the spring have waned, with growth stalling in the summer. Manufacturers continue to be challenged by supply chain bottlenecks, workforce shortages and soaring production costs.

With that said, manufacturing activity has proven to be quite resilient over the course of the past year, and while manufacturing production has pulled back for two consecutive months, it has risen 3.6 percent over the past 12 months. In addition, manufacturing capacity utilization has slipped from 80.3 percent in April, the highest since April 2007, to 79.8 percent in May to 79.3 percent in June, but it remains elevated.

Manufacturing activity expanded for just the third time this year in the Empire State survey. Input prices decelerated, remaining elevated but at the slowest pace since February 2021. Yet, manufacturers in the region felt pessimistic in their outlook for the next six months, with the forward-looking composite index notching the first negative reading since February 2009.

Meanwhile, retail sales increased 1.0 percent in June. Gasoline station spending rose 3.6 percent, pushed higher by increased prices, with 49.1 percent growth over the past 12 months. Excluding gasoline station sales, retail spending increased 0.7 percent.

The data were largely positive across the board, suggesting that consumer spending remains somewhat resilient despite numerous challenges. The real issue is whether that strength will continue moving forward, or if Americans will be spooked by inflation and an uncertain economic outlook.

Along those lines, the Index of Consumer Sentiment edged up from a record low 50.0 in June to 51.1 in July in preliminary data. Despite marginal progress in the headline number, consumers remain very anxious, with sentiment near the lowest readings in the survey’s history, particularly as higher prices dampen their purchasing power and overall household finances. 

Consumer prices soared 1.3 percent in June, the fastest monthly increase since September 2005. Growth in food and energy costs remained very solid, up 1.0 percent and 7.5 percent in June, respectively, with gasoline prices up 11.2 percent. Excluding food and energy, core consumer prices rose 0.7 percent in June.

The Consumer Price Index has risen 9.1 percent over the past 12 months, the fastest year-over-year pace since November 1981. At the same time, core inflation (which excludes food and energy) increased 5.9 percent year-over-year in June. The current forecast is for year-over-year growth in the CPI to be 6.4 percent at year’s end, with core inflation at 5.2 percent.

Producer prices for final demand goods and services rose 1.1 percent in June. At the same time, producer prices for final demand goods increased 2.4 percent in June, the strongest rise since March. For the month, energy prices jumped 10.0 percent, but with food costs edging up just 0.1 percent. Excluding food and energy, producer prices for final demand goods increased 0.5 percent in June.

Over the past 12 months, producer prices for final demand goods and services jumped 11.3 percent, the highest rate since March’s 11.6 percent pace, which was the largest increase on record. Core producer prices increased 6.4 percent year-over-year, decelerating for the third straight month from the record 7.1 percent in March but remaining highly elevated.

Manufacturers cite rising raw materials costs as their top challenge, followed closely by supply chain and workforce challenges, with the very significant pace of price growth in this data over the past year helping to explain why.

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