Manufacturers in region say output fell


WASHINGTON -- Mid-Atlantic manufacturers said their factory output declined last month as inflation remained in check, according to a Richmond Federal Reserve Bank report released yesterday.

Manufacturers surveyed said they expected prices of their goods to rise a modest 0.81 percent over a six-month period, the Richmond Fed said.

The pace of price increases for finished goods was little changed last month as raw material price increases slowed, according to the 137 companies surveyed.

The report came as Fed policy-makers on the Open Market Committee cut interest rates last week with a judgment that inflation is under control as the economic expansion weakens.

They lowered the federal funds rate on loans among banks to 5.75 percent from 6 percent. Some analysts predict that price increases are sufficiently in check to permit the Fed to cut rates further, perhaps at a policy meeting Aug. 22.

Last month, manufacturers said, prices on their finished goods rose at a 0.76 percent yearly rate, about the same as May's 0.74 percent and down from a 1.20 percent yearly rate in April and a 1.25 percent pace in March. And inflation in raw materials prices tumbled to a 1.39 percent yearly rate in June. That represents a continuation of a steady decline from a 1.88 percent rate in May, 2.80 percent in April and 4.34 percent in March.

Mid-Atlantic manufacturers expect prices on their finished goods to rise at just a 0.81 percent yearly rate during June through November. That's slower than the 1.44 percent inflation pace seen in the previous survey and the 1.59 percent that manufacturers saw in a survey taken in April.

Nationwide, producer prices on finished goods traded among businesses increased just 2.2 percent in the 12 months that ended in May. The Labor Department will report the June figures tomorrow.

The Richmond Fed report confirms that there may be inflation in the production pipeline that isn't passed on in the final price of goods.

While mid-Atlantic manufacturers surveyed last month expect their finished goods prices to rise at a 0.81 percent rate over the six-month period, they see prices of raw materials they buy rising at a 1.57 percent clip, meaning that their profits may be squeezed.

Tough foreign competition precludes U.S. makers from raising prices at will, Federal Reserve Chairman Alan Greenspan has said.

Many manufacturers compensated for rising raw materials costs over the past year by laying off employees and making the remaining staff perform more work, frequently by increasing overtime hours.

More companies laid off workers last month than hired new employees: 17 percent cut their work forces during June, while 15 percent fattened their payrolls.

Over the six-month period, just 18 percent of manufacturers expect to add more workers, while 21 percent expect to reduce the number of jobs. In a further reflection of the economic slowdown, just 22 percent of the companies shipped more goods in June than in May, while 34 percent shipped fewer goods. Over the coming six-month period, though, manufacturers are more optimistic, with 35 percent expecting to ship more goods in November than in June, against 23 percent who see fewer goods moving to market.

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