Richmond Fed Manufacturing Composite: A Turn for the Worse

October 23rd, 2012

by Doug Short

As a resident of the Fifth District, this is a regional manufacturing index I pay close attention to. The Fifth District includes Virginia, Maryland, the Carolinas, the District of Columbia and most of West Virginia. The Federal Reserve Bank of Richmond is the region's connection to the nation's Central Bank.

The complete data series behind the latest Richmond Fed manufacturing report (available here) dates from November 1993. The chart below illustrates the 21st century behavior of the diffusion index that summarizes the individual components.

The March update shows the manufacturing composite at -7, a slight decline from last month's -6. Not surprisingly, the full report continues to mention bad weather as a factor. Today's composite number was below the forecast of -1.

Because of the highly volatile nature of this index, I like to include a 3-month moving average, now at -0.3, to facilitate the identification of trends.

Here is a snapshot of the complete Richmond Fed Manufacturing Composite series.

Here is the latest Richmond Fed manufacturing overview.

Fifth District manufacturing activity remained soft in March, according to the most recent survey by the Federal Reserve Bank of Richmond. Shipments and the volume of new orders declined. Manufacturing employment remained flat, while the average workweek edged up and wages rose moderately.

Manufacturers' expectations moved back in line with January's expectations. A participant commented that weather has "wreaked havoc" on demand for the past two months, but he anticipated that his company will be very busy once the weather improves. Compared to last month's outlook, shipments and new orders were expected to grow more quickly. Additionally, manufacturers looked for faster growth in backlogs and capacity utilization. Firms anticipated slightly longer vendor lead times in the six months ahead. Survey participants also expected faster growth in the number of employees along with strong growth in wages and a pickup in the average workweek.

Raw materials and finished goods prices rose at a slower pace in March compared to last month. Manufacturers expected faster growth in prices paid and prices received over the next six months, although their outlook was below February's expectations.

Here is a somewhat closer look at the index since the turn of the century.

Is today's Richmond composite a clue of what to expect in the next PMI composite? We'll find out when the next Manufacturing ISM Report on Business is released on April 1st.

Because of the high volatility of this series, we should take the data for any individual month with the proverbial grain of salt.

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