US: Richmond Fed Manufacturing Index

Tue Oct 24 09:00:00 CDT 2017

Consensus Consensus Range Actual Previous
Level 20 15 to 20 12 19

Manufacturing activity in the Fifth District expanded for the twelfth consecutive month in October though at a slower than expected pace, with the Richmond Fed Manufacturing Index shedding 7 points from the September reading to 12. Driven by a notable drop in the shipments component of the index, which fell from 22 to 9, the decline exceeded the range of analysts' expectations and put the index sharply below the consensus forecast of 20.

Most of the current conditions components of the index also registered declines, including the volume of new orders, down 3 points to 17, backlog of orders, down 1 point to 7, and capacity utilization, down 9 points to 7. Even the employment front saw weakness, with the number of employees component falling 5 points to 10 and the average workweek down 8 points to 8.

But vendor lead did rise 3 points to 18 and in the most positive element of the report, wages finally came to life, rising 7 points to 24, the highest reading for the component since May 2000.

Expectation components remained highly optimistic, led, in contrast with the current conditions reading, by shipments, up 7 points to 50. Capital expenditure expectations also bounced backed from a 12 point drop in the prior month and were up 9 points to 27.

Inflation pressures were stable and moderate in both prices paid, at a 1.77 percent annualized rate, and prices received, at 1.21 percent. Price expectations were also stable, running at around 1.90 percent, with a slight pickup in expected prices received.

Today's report points to a deceleration in Fifth District manufacturing activity to a more moderate growth pace, but optimism among manufacturers remains undaunted and may even be on the rise. It also offers a small shred of evidence to the Fed that wage pressures may be on the rise.

Market Consensus Before Announcement
Like other regional surveys, the Richmond Fed's manufacturing index has been running at unusually strong levels. September's 6 point jump to 19 easily beat Econoday's high estimate with the report's details showing robust levels for shipments and extended strength for hiring. The October consensus is for a 1 point rise to 20.

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.