The Richmond Fed Manufacturing Index declined sharply in December to -8. This was the first negative reading since -6 in September 2016. The index reflected abrupt and steep declines in shipments in December from November (-25 versus 12) and new orders (-9 versus 17). However, the component for employment was up a bit (14 versus 11). Other subindexes related to employment suggested the labor market is still strong. The wages index dipped to 31 in December, but only just off the peak of 34 in November. The availability of workers with skills to match openings was down to -28 from -26. The workweek continued to expand, but less quickly at 3 from 11.
A one-month wobble in the index normally would not be cause for alarm, but the sharp drop comes at the same time as other District Bank reports on manufacturing are showing signs of softening. It would be an overstatement to say that conditions have significantly deteriorated, but certainly it looks like the factory sector is getting ready to decelerate from a hectic pace of expansion to something more moderate.
To some extent this is attributable to signs that the global economy is experiencing slower and less even growth. The period of synchronized expansion is likely done in the face of trade disputes and adjustments for new tariffs.
The Richmond equivalent to the ISM Manufacturing Index’s five components points to deceleration in activity at 50.7 in December from 57.7 in November. The equivalent indexes for the New York, Philadelphia, and Kansas City Feds also indicate slower expansion for the ISM Manufacturing Index when it is reported on Thursday, January 3 at 10:00 ET. The Richmond equivalent strong correlates to the ISM number (0.801), exceeded only by the Philadelphia calculation (0.825).
Disclaimer: Whetstone Analysis provides commentary as a service to its subscribers. Whetstone Analysis is not responsible for, and expressly disclaims all liability for, damages of any kind arising out of use, reference to, or reliance on any information contained within the site. While the information contained within the site is periodically updated and every effort is made to ensure its accuracy, no guarantee is given that the information provided in this Web site is correct, complete, and up-to-date. Click here to read our full Disclaimer.