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March has not been a good month for the Richmond manufacturing sector where the index fell into contraction, to minus 8 vs zero in February. Order readings, both for new orders and backlogs, are down substantially as are shipments and the workweek. Hiring, however, remains respectable, at least for now. Price readings show only the most marginal pressure.
The early signals from the regional manufacturing reports (that is this report together with last week's Philly Fed and Empire State reports) are all showing weakness in orders, a trend also highlighted by this morning's PMI flash where weakness in export orders is specifically cited. Just last week, the FOMC underscored weak exports as a major factor holding back economic growth.
Market Consensus Before Announcement
The Richmond Fed manufacturing index in February essentially was flat where the index was at zero from 6 in January. A zero reading indicates no monthly change in the rate of activity. Details are mostly weak including slight declines for new orders and shipments and a steep decline in backlogs. Positives are led by respectable growth in hiring and for wages. Prices readings are low and show continued easing. This report ties in with other early indications of flatness in this month's manufacturing sector.
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.
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