US: Richmond Fed Manufacturing Index

Tue Jan 27 09:00:00 CST 2015

Consensus Consensus Range Actual Previous
level change 5.5 4.0 to 8.0 6 7

The bulk of early indications on January's manufacturing sector point to slowing including this morning's reading from the Richmond Fed which slipped 1 point to plus 6. Growth in new orders, at 4, is steady but moderate while the draw in backlog orders has picked up, to minus 9 from minus 5. Production, fed by the working down in backlogs, actually accelerated 5 points in the month to plus 10 but this pace can't be sustained unless new orders pick up. Manufacturing firms in the region continue to add employees but at a slower pace, 5 vs December's 13. Price readings, like in most other reports, show moderating cost inflation for inputs together with moderating pricing power for finished goods. The manufacturing sector appears to be soft this month in what is a special concern given this morning's weak report on durable goods orders for December.

Market Consensus Before Announcement
The Richmond Fed manufacturing index for December picked up to 7 from 4 in November. New orders showed relative strength, at 4 versus November's 1, but were still on the soft side. Order backlogs, however, showed outright contraction for a second month, at minus 5 vs minus 2 in November. Shipments showed relative strength to November, at 5 vs 1, but, like new orders, were still on the soft side. A definitive sign of strength, however, came from employment which was up 3 points to a very solid 13 in a reading that points to underlying confidence among the region's manufacturers. Price data were soft in line with declining fuel costs.

This survey provides a comprehensive set of indicators of business conditions within the fifth region's manufacturing sector. The survey provides participants' knowledge of recent changes in manufacturing activity as well as insights into expected developments in six months. The data are released the fourth Tuesday of each month. The headline index is the composite for current month activity. It is a weighted average of the shipments (33%), new orders (40%) and employment (27%) indexes. (Federal Reserve Bank of Richmond)

Investors need to monitor the economy closely because it usually dictates how various types of investments will perform. By tracking economic data such as the regional Fed surveys, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers more moderate growth so that it won't lead to inflation. These surveys give a detailed look at the manufacturing sector, how busy it is and where things are headed. Since manufacturing is a major sector of the economy, this report has a big influence on market behavior.