Richmond Fed Manufacturing Composite: Activity Declined in March

March 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 March update shows the manufacturing composite at -8, down from 0 last month. Above zero indicates expanding activity; below zero indicates contraction. Today's composite number was well below the Investing.com forecast of 2.

Because of the highly volatile nature of this index, I like to include a 3-month moving average, now at -0.7, 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.

Manufacturing activity declined in March, according to the most recent survey by the Federal Reserve Bank of Richmond. Shipments and the volume of new orders dropped. Order backlogs fell and capacity utilization declined. Hiring in the manufacturing sector was soft and the average workweek shortened. Wage growth remained modest.

Looking ahead six months, producers anticipated more favorable business conditions. Producers expected strength in shipments and new orders, and a jump in capacity utilization. Expectations were for a growing backlog of orders and a slight rise in vendor lead-times. Further, producers anticipated robust growth in hiring and wages, along with a modestly longer workweek.

Prices of raw materials and finished goods rose only slightly in March. Manufacturers anticipated mildly faster price growth over the next six months, compared with the current pace.

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.

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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