US: Richmond Fed Manufacturing Index

January 24, 2017 09:00 CST

Actual Previous
Level 12 8

Manufacturing activity in the Fifth district expanded for the third consecutive month in January, with the Richmond Fed Manufacturing Index rising another 4 points to 12 after the same increase in the previous month and an 8 point gain in November. Strength in company conditions was led by the number of employees component, which rose 9 points to 8, and by new orders, which rose 4 points to 15. The index for shipments also added a point, rising to 13.

Order backlogs fell from 8 to 4, however, paring back the 20 point gain in December, and vendor lead times declined, dropping to 5 from 10, as did capacity utilization, which fell 2 points to 8. On the employment front, the strength in hiring was softened by the average workweek, with the index component falling 6 points to 5, and wages, which decreased by 8 points to 11.

But it was expectations that registered the strongest readings, as manufacturers were optimistic about their business prospects in the next six months, with the index for planned capital spending rising to 28 from 21, and the outlook for expected shipments gaining 5 points to 50. Employers planned to continue adding employees during the next six months, putting the number of employees index up 5 to 27.

Current input price growth slowed slightly to annualized rate of 1.52 percent from 1.60 percent, but the pace of growth in prices received increased sharply from 0.22 percent to 0.96 percent. Manufacturers expect prices to increase at a faster rate over the next six months, with prices paid rising at an annualized rate of 1.75 percent and prices received at 1.45 percent.

Last week's unusually strong Philly Fed report signaled a rebound in the struggling manufacturing sector, and today's positive report from the Richmond Fed presents a confirmation of it from another region.

This survey tracks business conditions in the Richmond Fed's manufacturing sector. The headline index is a composite of the new orders, shipments, and employment indexes.

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.