Richmond Fed Manufacturing Composite: "Expanded Modestly" in January

January 27, 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 January update shows the manufacturing composite at 6, down from 7 last month. Numbers above zero indicate expanding activity. Today's composite number was spot on the Investing.com forecast of 6.

Because of the highly volatile nature of this index, I like to include a 3-month moving average, now at 5.7, 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 expanded at a modest pace in January, according to the most recent survey by the Federal Reserve Bank of Richmond. Shipments increased at a faster pace this month, while the volume of new orders remained steady. Manufacturing employment and average wages grew at a slower pace this month. However, the average workweek grew more quickly.

Manufacturers were optimistic about future business conditions. Firms expected faster growth in shipments and new orders in the six months ahead. Additionally, survey participants expected order backlogs to increase and anticipated faster growth in capacity utilization. Expectations were for little change in vendor lead times.

Producers expected faster growth in hiring in the months ahead. They also expected solid growth in average wages and a pickup in the average workweek.

Prices of raw materials and finished goods rose at a slower pace compared to last month. Survey participants 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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