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First Cut: Richmond Fed’s Manufacturing Index softer in April, but expansion continues

The Richmond Fed’s Manufacturing Composite Index fell to 3 in April after 10 in March, sliding lower for a second month in a row after the rebound to 16 in February. The index was lower in all three components.

New orders dropped to -2 in April from 9 in March, and shipments also turned negative at -2 from 2 in the prior month. Employment was down to 18 from 23 in March, however, this is still a solidly expansionary reading for this area.

The regional labor market saw a contraction in the workweek index to -11 in April from 5 in March while the wages index slipped to 25 from 33 and available skills were at -8 after -14. The bottom line is that hiring continues at a solid pace with moderate increases in wages due to lack of qualified workers. If the workweek contracted, it probably means that factories are needing less overtime to fill orders and adjusting accordingly.

Delivery times widen to 13 in April from 7 in March and inventories were up to 23 from 17 and were the highest since 22 in March 2017. The factory sector is still adjusting to slower conditions. I note that the Whetstone Analysis calculation for a six month expectations index was up to 36 in April from 31 in March and the highest since 42 in October 2018. The outlook is far from discouraging once the reset to more modest activity has been absorbed and understood.

The prices paid index was up to 3.04 in April, reflecting higher energy prices. Prices received were down to 1.84 for the month, suggesting recent pricing power is fading.

The Richmond-ISM equivalent index calculation points to only slightly slower activity in April at 55.0 from the 55.8 in March. The Richmond Fed equivalent correlated strongly with the ISM Manufacturing Index — as does the Philadelphia-ISM equivalent. Both point to a decline from the 55.3 reading for the ISM Manufacturing Index when the report is released at 10:00 ET on Wednesday, May 1. Continued moderate expansion seems to be the underlying story.

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