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posted on 27 September 2016

Richmond Fed Manufacturing Survey Remains In Contraction In September 2016.

Of the five regional Federal Reserve surveys released to date, three are in expansion and two are in contraction.

Analyst Opinion of Richmond Manufacturing

We have a mixed picture of manufacturing across the fed districts. This report shows extremely low employment - and new orders and backlog improved but are also in contraction. At this point it seems the surveys are forecasting flat growth for September.

There were no market expectations from Bloomberg. The actual survey value was -8 [note that values above zero represent expansion].

Manufacturing activity in the Fifth District continued to soften in September, but somewhat less so than in August, according to the Richmond Fed's latest survey. New orders and shipments decreased this month at a slower pace, while backlogs decreased at about the same pace as last month. Hiring activity weakened across firms and wage increases were less widespread. Although raw materials prices rose at a somewhat faster pace in September, prices of finished goods barely increased in the month.

Looking ahead six months, producers' expectations about future business conditions have softened compared to last month's readings. Manufacturers expected softer growth in shipments and in the volume of new orders as well as backlogs of orders. Fewer survey participants expected vendor lead times to lengthen. Expectations for increased capacity utilization softened somewhat.

Manufacturing firms anticipate more modest hiring and continued wage increases in the months ahead. Firms expected faster growth in prices received and prices paid in the next six months.

Current Activity

Overall manufacturing activity, as measured by the composite index, gained three points but continued to indicate some contraction, with a reading of −8 following last month's reading of −11. The indicators for shipments and new orders increased this month but remained negative. The index for shipments gained 10 points, ending at a reading of −4, while the index for new orders rose 13 points to −7. In contrast, the manufacturing employment index fell into negative territory for the first time in three years, with a reading of −13.

The extent of weakness in capacity utilization across firms eased somewhat in September, as the index gained eight points to end at a reading of −11. The index for order backlogs was little changed with a reading of −20, following last month's reading of −21. The vendor lead time indicator remained positive and unchanged at 5. Indicators for inventories were somewhat lower in September but still positive, suggesting that inventory increases were a little less widespread compared to a month ago. The raw materials inventory index fell two points to 25 and the finished goods inventory index fell by four to 20.

Summary of all Federal Reserve Districts Manufacturing:

Richmond Fed (hyperlink to reports):

z richmond_man.PNG

Kansas Fed (hyperlink to reports):

z kansas_man.PNG

Dallas Fed (hyperlink to reports):

z dallas_man.PNG

Philly Fed (hyperlink to reports):

z philly fed1.PNG

New York Fed (hyperlink to reports):

z empire1.PNG

Federal Reserve Industrial Production - Actual Data (hyperlink to report):

Holding this and other survey's Econintersect follows accountable for their predictions, the following graph compares the hard data from Industrial Products manufacturing subindex (dark blue bar) and US Census manufacturing shipments (lighter blue bar) to the Richmond Fed survey (darkest bar).

Comparing Surveys to Hard Data:

z survey1.png

In the above graphic, hard data is the long bars, and surveys are the short bars. The arrows on the left side are the key to growth or contraction.

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