Richmond Fed Manufacturing Composite: "Continued to Improve in August"

August 26, 2014

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 August update shows the manufacturing composite at 12, up from 7 last month. Numbers above zero indicate expanding activity. Today's composite number was above the forecast of 8.

Because of the highly volatile nature of this index, I like to include a 3-month moving average, now at 7.7, 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 continued to improve in August, according to the most recent survey by the Federal Reserve Bank of Richmond. Shipments and the volume of new orders picked up this month. Although manufacturing employment and average wages rose at a slower pace this month, the average workweek lengthened.

Manufacturers anticipated stronger business conditions during the next six months. Firms expected faster growth in shipments and new orders in the six months ahead. Additionally, survey participants looked for increased capacity utilization and expected order backlogs to grow more quickly. Expectations were for longer vendor lead times.

Survey participants' outlook for the months ahead also included faster growth in average wages and the average workweek, with a pickup in hiring.

Prices of raw materials and finished goods rose at slower pace in August compared to last month. In contrast, manufacturers expected faster growth in prices paid and prices received over the next six months.

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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