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The Richmond Fed is reporting the best strength of any manufacturing region this month, at 13 which is above the Econoday top-end estimate. New orders are especially strong, up 7 points to 17, with backlog orders also rising, up 7 points to 10. Shipments are strong, capacity utilization is up and inventories, because of the activity, are being drawn down. Hiring, however, is slowing. Price data show slight pressure for inputs but no pressure for finished goods.
This report contrasts with much slower rates of growth in the New York and Philadelphia Fed regions and sharply contrasts with recent data from the Dallas and Kansas City Feds where manufacturing, due to the energy sector, is in deep contraction. But today's result is a welcome positive, suggesting that manufacturing may yet pick up this year and a reminder of strength in yesterday's durable goods report.
Market Consensus Before Announcement
After running in the negative column earlier in the year, the Richmond Fed manufacturing survey has been picking up steam. New orders and backlog orders have been especially solid in prior reports pointing to building strength for future reports.
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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