Bear Market – Weak Richmond Fed Survey
The Richmond Fed index fell from 29 in September to 14 in October. This missed the consensus for 24 and the lowest estimate which was 16.
Weakest component was shipments which fell from 33 to 7. The volume of new orders fell from 34 to 20.
There aren’t quotes included in this report, so we can’t be sure what caused this decline. It’s probably related to tariffs. Even with that weakness, the capacity to utilization index was flat at 20.
Local business conditions fell from 27 to just 8. Capex spending fell from 29 to 21 and equipment and software spending fell from 20 to 16.
Wages fell from 33 to 28, but the number of employees fell from 19 to 16. The availability of skills needed fell from -11 to -22. This shows how tight the manufacturing labor market is.
There is a worker shortage. The most shocking part of this report is the prices paid index increased from 3.47 to 5.68 and the prices received increased from 1.93 to 2.84.
This spike shows how volatile this index can be. It has a small sample size as only 76 firms participated.
Bear Market – It would be silly to be bearish on manufacturing when the Empire Fed and Philly Fed readings were both solid.
On the other hand, the Chicago Fed national activity index fell from 0.27 to 0.17 in September. That’s also a volatile report as the August reading was revised from 0.18 to 0.27.
The Richmond Fed index brought down the ISM PMI projection from the average of the regional surveys to 56. That would be a continuation of the cyclical decline in the index. Personally, I give the September industrial production report way more credibility than any of these surveys.
The expectations index looks better. Shipment expectations increased from 43 to 49. The volume of new orders increased from 37 to 43. Local business conditions were up from 32 to 37.
As you can see from the chart below, the expectation for capex was up from 29 to 38. That was one of the best readings since 1997. Spending on equipment and software was up from 23 to 28. The employment readings were wild. Number of employees index was up from 23 to 33. Wages were up from 45 to 59.
