Richmond Fed Manufacturing Composite: Activity Slowed in February

February 24, 2015

by Doug Short

As a resident of the Fifth District, this is a regional manufacturing index I pay close attention to. The Fifth District includes Virginia, Maryland, the Carolinas, the District of Columbia and most of West Virginia. The Federal Reserve Bank of Richmond is the region's connection to the nation's Central Bank.

The complete data series behind the latest Richmond Fed manufacturing report (available here) dates from November 1993. The chart below illustrates the 21st century behavior of the diffusion index that summarizes the individual components.

The February update shows the manufacturing composite at 0, down from 6 last month. Numbers above zero indicate expanding activity. Today's composite number was well below the Investing.com forecast of 7.

Because of the highly volatile nature of this index, I like to include a 3-month moving average, now at 4.3, to facilitate the identification of trends.

Here is a snapshot of the complete Richmond Fed Manufacturing Composite series.

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Here is the latest Richmond Fed manufacturing overview.

Fifth District manufacturing activity slowed in February, according to the most recent survey by the Federal Reserve Bank of Richmond. Shipments and the volume of new orders flattened, while the backlog of orders declined. Hiring in the sector was weak and the average workweek shrank, although wage growth advanced modestly. Despite the soft current conditions, producers were upbeat about future business opportunities. Expectations were for solid increases in shipments and new orders in the six month s ahead, with greater capacity utilization. In addition, manufacturers looked for a build-up in backlogged orders and minimal vendor lead-times.

Compared to January's outlook, producers expected slower employment growth and less growth in the average work week. Although wage growth expectations remained solid in February, the outlook was less robust than a month earlier.

Prices of raw materia ls a nd finished goods were little changed in February. Looking ahead, manufacturers expected slower price growth over the next six months than they had a month ago.

Here is a somewhat closer look at the index since the turn of the century.

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Is today's Richmond composite a clue of what to expect in the next PMI composite? We'll find out when the next Manufacturing ISM Report on Business is released next week.

Because of the high volatility of this series, we should take the data for any individual month with the proverbial grain of salt.

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