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First Cut: Richmond Fed Manufacturing Index little changed in June with expansion sluggish

The Richmond Fed’s Manufacturing Index was at 3 in June, down from 5 in May but the same as 3 in April. The index is a weighted average of shipments (7 in June after 2 in May), new orders (1 after 0), and employment (2 after 17). The District’s factory sector continued little changed overall and suggested that sluggish conditions are likely to continue even as they cling to narrow expansion.

The Whetstone Analysis calculation for six month expectations was as 22 in June after 27 in May, and was at its lowest since 20 in December 2018. The outlook has softened to readings similar to those seen in late 2016, indicating that the regional factory sector has lost most of the steam in 2017 and 2018 even as it expects growth to remain in place.

The subindex for delivery times widened to 7 in June after 0 in May, and consistent with less heated activity for the factory sector. Inventories narrowed slightly to 21 in June from 26 in May and remain higher than they have been in about three years. It is likely steps will be taken to reduce inventories to ensure there is no uncomfortable buildup of unwanted goods.

The index for prices paid moderated to 1.58 in June from 2.21 in May, following the path of energy prices lower. Prices received rose a bit to 1.68 in June from 1.53 in May, but are still lower than in recent months and point to less pricing power on the part of businesses.

The Richmond-ISM equivalent index — calculated from the five components closest to the ISM report — was down to 53.8 in June after 54.5 in May. This is not a substantial decrease in expansionary conditions and somewhat reassuring given the strength of the correlation between the Richmond index and the ISM Manufacturing Index. The other strong correlation is with the Philadelphia-ISM equivalent and it showed little change at 55.8 for June after 55.7 in May. Activity at the national level is likely to be only narrowly expansionary when the ISM report is released at  10:00 ET on Monday, July 1. The equivalents for the New York Fed (down 4.3 points to 48.4) and Dallas Fed (down 0.6 to 51.5), offering a broader picture of lackluster conditions.

 

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