Richmond Fed survey shows mixed Fifth District manufacturing activity

Manufacturing activity across the Federal Reserve Bank of Richmond’s Fifth District remained close to flat in October, with weaker new orders and hiring measures offset by improved shipments. The composite index held at minus 2, matching September, in the survey released Oct. 27. The number summarizes the balance of firms reporting improvement against those reporting deterioration; it is not a measure of output growth or a percentage change. Its stability therefore signals that the overall mix of responses changed little, even as important components moved in opposite directions.

The shipments index climbed five points to zero from minus 5, while the new-orders index fell to minus 8 from minus 6 and the employment index dropped to 3 from 7. Together those three components make up the composite: shipments carry a 33 percent weight, new orders 40 percent and employment 27 percent. The unchanged headline reading is not an arithmetic average of the three displayed index numbers; the bank calculates a weighted composite. At zero, the shipment balance indicates that reports of increases and decreases were even after adjustment, not that factories shipped nothing.

Several other current measures showed strain in the order pipeline. The backlog-of-orders index declined to minus 21 from minus 10, while capacity utilization stayed at minus 7. Vendor lead times rose to 18 from 8, a reading consistent with more firms reporting longer rather than shorter waits. Local business conditions weakened to minus 8 from minus 6. Capital expenditures slipped to minus 12 from minus 7, equipment and software spending reached minus 8 from minus 4, and services expenditures fell to minus 19 from minus 10. Inventory indexes diverged: finished-goods inventories were 4, unchanged, while raw-material inventories moved down to minus 2 from 6. These balances describe respondent direction, not the dollar value or volume of orders, investment or inventories.

Labor-related responses were mixed. The number-of-employees index eased to 3 from 7, but remained above zero; the future employment expectations index was 8, unchanged from September. Wages registered 20, up from 17. The availability-of-skills-needed index improved to minus 7 from minus 11, though it remained negative. The survey does not provide headcounts or wage growth rates in this table, so the indexes cannot be translated into a specific number of jobs, vacancies or compensation changes. They show how firms characterized the direction of conditions.

Price measures require a different reading from the diffusion indexes. The report defines current price changes as non-seasonally adjusted percentage changes over the previous 12 months. Prices paid rose 7.12 percent, compared with 7.08 percent in September, while prices received increased 5.27 percent, up from 4.19 percent. Firms expected growth over the next 12 months of 5.32 percent for prices paid and 4.30 percent for prices received. These expectations were below the current readings but above September's expectations of 4.73 and 3.84 percent. Business-activity expectations use a separate six-month horizon: future shipments and new orders remained positive, expected employment held at 8 and future local conditions fell to 7 from 10.

The bank said results draw on 120–130 firms located in the Fifth District, which includes the District of Columbia, Maryland, North Carolina, South Carolina, Virginia and most of West Virginia. For each index, the share reporting an increase is reduced by the share reporting a decrease. Business indexes are seasonally adjusted; seasonal factors are recalculated each July and the historical series revised. Expectations refer to six months after the survey period. The October reading thus offers a timely but regional, survey-based account: it captures the direction of participating manufacturers’ reports, not a census of every factory or a forecast of national industrial production.