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Early indications for the November factory sector are soft right now after Richmond Fed reports a much lower-than-expected minus 3 headline for its manufacturing index. Order data are very negative with new orders at minus 6, down from zero in October, and backlog orders at minus 16 for a 9-point deterioration. Shipments are also in contraction, at minus 2, with the workweek at minus 3. Employment, at zero, shows no monthly change but the declines for backlog orders and the workweek don't point to new demand for workers. Price data are subdued but do show some constructive upward pressure.
This report along with Empire State, as well as yesterday's manufacturing PMI, are pointing to a downbeat month for the factory sector which is being held down by weak foreign demand, as evidenced in the decline for goods exports in this morning's advance release of international trade data.
Market Consensus Before Announcement
Regional Fed surveys have been showing improvement in November and the same is expected for the Richmond Fed's manufacturing index. The Econoday consensus is calling for a 2 point rise to plus 1 which would be the first positive reading since July. Details in this report, as in other manufacturing surveys, did show life in October but there were points of weakness including lack of growth for new orders and extended contraction for backlog orders.
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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