Manufacturing Bounces Back in Richmond Fed Territory

Manufacturing in the territory covered by the Federal Reserve Bank of Richmond bounced back in January but still shows signs of contracting.

The Richmond Fed’s manufacturing index rose to negative tw0 in its January survey, indicating that manufacturing activity contracted. But that was a boost from the negative eight recorded in December and better than the negative three forecast by economists surveyed by Bloomberg.

This was the second of the regional factory surveys to show weakness this year. Last week, the Empire State manufacturing index from the New York Fed fell by more than expected, although it continued to show a low level of expansion.

The two regional reports, which are based on surveys of factory operators, run contrary to the very strong manufacturing production figures in last week’s industrial production report.  This could suggest that factory operators have an overly pessimistic view or that the production numbers mask underlying weakness. Future reports will indicate which view is correct.

The Philadelphia Fed’s sample, reported last week, also ran contrary to the Richmond and New York reports. It came in much higher than expected, at 17.0, an unexpected eight-point gain. that sample is reporting clear acceleration so far in the New Year. New orders surged higher, indicating conditions are likely to improve in months to come, and unfilled order rose as well.

Today’s results contrast with Tuesday’s Empire State report where the headline index fell to 3.9 for the lowest reading in nearly two years. And given that Philly’s sample often reports greater strength than other regional reports, the verdict on the factory sector is still uncertain. Tomorrow’s much more definitive data on December’s industrial production may help clear up the picture for a factory sector that roared through most of 2018 before apparently slowing at year end.

The Richmond Fed index, which hit a high of 29 in September, covers Maryland, Virginia, West Virginia, and the Carolinas.  In November it fell to 14 hit negative territory for the first time in two years in December.
There are no signs that the metals tariffs are the source of the slowdown. In fact, materials costs fell in January, at least the second consecutive decline.

Expectations for the future remain very strong. The measures for expected shipments, new orders, capital expenditures, and local business predictions all improved in January.