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First Cut: Richmond Fed manufacturing survey less negative in August, but far from solid

The Richmond Fed’s Composite Manufacturing Index staged a rebound in August, but the weak reading of 1 was good only in comparison to the steep decline to -12 in the prior month. The Whetstone Analysis calculation of a six-month expectations index showed that momentum had declined to 20 in August from 28 in July and was the lowest since 18 in July 2016. The underlying trend for conditions seems to be one of narrow expansion at present with little hint that the near future will show significant improvement.

Two of three index components were higher. New orders returned to a positive 2 in August after -18 in July and was the first positive in three months. Shipments also regained ground to 5 in August after -13 in July.

However, the component for employment dipped further into contraction at -6 after -3 in the prior month. Businesses are expanding the workweek while not hiring with the subindex at 22 in August after 20 in July. In spite of the soft hiring, wages are still rising moderately with the sub index after 20. This is probably released to the lack of workers with available skills where the subindex rose, but only to -16 after -19.

Delivery times are varying, but remain not far off the neutral mark as activity is adjusted. The August index was at 6 after 1 in July. Inventory growth is not growing as quickly with the index at 10 after 17, with businesses making swift adjustments to slower growth.

The reading for prices paid declined to 2.69 in August from 3.04 in July and likely was due to lower energy costs. Prices received were down to 1.66 in August after 2.49 in July and were the lowest since 1.54 in April 2018. Although price increases are modest, the ability to pass through any higher costs is limited.

The Richmond-ISM equivalent index was us to 51.7 in August from 48.4 in July. This calculation has a good correlation to the ISM Manufacturing Index. It is unlikely that the national index is going to rise notably from the 51.2 in July when the August data is released at 10:00 ET on Tuesday, September 3. However, the encouraging increase for Richmond helps offset some of the gloomier numbers from other Fed District Bank surveys of manufacturing conditions. On net, activity is sluggish, at best, but still growing.

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