skip to Main Content

First Cut: Richmond Fed Composite Manufacturing Index surprises to the upside in March

Contrary to expectations, the Richmond Fed Composite Manufacturing Index actually rose to 2 in March from -2 in February. The improvement was due to the new orders component rising back to neutral (0) in March from -10 in February and shipments increasing to 13 from 1. The component for employment fell to -7 from 8, but it has the lowest weight among the three. While the Richmond Fed index has the best correlation with the ISM Manufacturing Index among the five District Bank surveys of manufacturing (0.848), its modest rise will need to be interpreted with caution amid other indications of widespread slowdowns in the manufacturing sector.

The Whetstone Analysis calculation for a six-month expectations index for March declined to -14 after 28 in the prior month. This suggested that the mild uptick in current conditions is not anticipated to continue.

Conditions in the regional labor market reflected an abrupt contraction for employment. Finding workers with the available skills remained difficult, but less so with the index declining to -26 after -35. The upward pressure on wages was less at 20 in March from 26 in February.  The average workweek expanded a bit to 3 in March after -4 in February, but this is only a slight increase.

The index for delivery times widened to 29 in March from 11 in February. However, this is probably less from vigorous activity and more for delays along the supply chain with some goods scarce. Inventories rose more slowly at 7 in March after 21 in February.

The index for prices paid fell to 1.29 in March after 1.95 in February. It was mainly due to declines in energy costs. The index for prices received was down to 1.22 after 1.54 as pricing power retreated.

The Richmond-ISM equivalent index rose to 54.2 in March from 53.1 in February. The correlation with the ISM Manufacturing Index is the best among the five District Bank surveys (0.833). However, it is hard to take the mild increase seriously in light of the substantial declines in the New York and Philadelphia equivalents. The reports out of Kansas City and Dallas may clarify things, but I would expect for the tone to reflect a return to contraction a the national level when the ISM data is released at 10:00 ET on Wednesday, April 1.

Back To Top