After Dallas Fed, Richmond Fed Re-Confirms Economic Contraction: Manufacturing Index Plunges

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Yesterday it was the Dallas Fed confirming our assumption that the US economy in Q2 has hit stalled speed. Today, it is the Richmond Fed which plunged compared to expectations and the March print of 20, instead dropping to 10, and indicative of a major slowdown in the manufacturing sector. From the index: "In April, the seasonally adjusted composite index of manufacturing activity – our broadest measure of manufacturing – fell ten points to 10 from March’s reading of 20. Among the index’s components, shipments decreased seventeen points to 6, new orders dropped ten points to finish at 10, and the jobs index eased two points to 14....All broad indicators – including shipments, new orders and employment – continued to grow but at a rate below March’s pace. Other indicators were mixed. Fifth District contacts reported that capacity utilization continued to grow more slowly, while backlogs turned slightly negative. Vendor delivery times edged higher and raw materials inventories grew at a somewhat higher rate." Now "Below March's pace" means trending Q2 GDP is now at or below 2%. But that's fine: somehow the economy will really hockeystick in Q3. And if not, there is QE3, 4 and 5. And the kicker, as usual, Prices Paid jumped as Prices Received plunged: which is always bullish for (collapsing) margins. Elsewhere the CON board called 7 Wall Street CEOs who told it that their butlers were happy with how much they paid for gas, but could pay a little more.

From the Richmond Fed:

Current Activity

In April, the seasonally adjusted composite index of manufacturing activity – our broadest measure of manufacturing – fell ten points to 10 from March’s reading of 20. Among the index’s components, shipments decreased seventeen points to 6, new orders dropped ten points to finish at 10, and the jobs index eased two points to 14.

Other indicators varied. The index for capacity utilization moved down twelve points to 2, and the backlogs of orders turned negative, losing nine points to -1. The delivery times index edged up two points to end at 18, while our gauges for inventories were mixed in April. The finished goods inventory index trimmed four points in April to end at 10, while the raw materials inventories index added nine points to 18.

Employment

Hiring conditions at Fifth District plants changed little in April from their March pace. The manufacturing employment index slipped two points to end at 14 and the average workweek measure eased three points to 7. In contrast, wage growth added three points to 22.

Expectations

Respondents in the current survey were generally optimistic about their business prospects over the next six months. The index of expected shipments decreased eleven points to end at 31, and the volume of new orders index dropped seven points to 38. Backlogs edged up two points to end at 27, while the capacity utilization and vendor lead time indexes both lost six points to finish at 28 and 12, respectively. Readings for planned capital expenditures registered a one-point gain to 29.

District manufacturers’ intentions to expand hiring held steady in April. The expected manufacturing employment index was unchanged at 17 and the average workweek indicator remained at 12. In addition, the expected wages index posted an eight-point loss to 30.

Prices

District manufacturers reported that raw materials prices increased at an average annual rate of 4.81 percent from March’s reading of 4.61 percent. Finished goods prices rose at a 2.60 percent pace from March’s reading of 3.01 percent last month.

Full breakdown:

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