Fifth District manufacturing activity in January was reported to be soft according to the most recent survey from the Richmond Fed.
Key Takeaways
- The composite index rose from -8 in December to -2 in January but continues to show weak growth overall, with that rise stemming from employment and shipments activity.
- New orders fell to a two-year low, dipping to the lowest point since June 2016.
- The index for backlog of orders fell to an almost 10-year low, the worst reading since May 2009.
The rise in the composite index mostly came from activity in the component indexes of employment and shipments, although shipments remained negative overall. While other components saw severe drops, manufacturers responding to the survey remained optimistic regarding the outlook for the coming months. The composite index remains in negative territory after a surprising drop brought it from 14 in November to -8 the following month.
Employment continued to see healthy growth in January, contributing to the overall positive outlook shared by many analysts on the strength of the US labor market. The Number of Employees index grew from 14 to 19, with wages holding at 31.
However, the shortages of skilled workers compared to open positions continues, and survey respondents believe that the shortage will continue, along with employment and wage growth, throughout 2019. The Available Skills index increased from -28 to -12, remaining in negative territory.
Prices paid by manufacturers saw reduced growth in January, although still outpaced growth of prices received which saw no change. Respondents expect for both areas to see a slowdown in growth over the next six months.
With the partial shutdown of the US government limiting the amount of economic data available to traders, more scrutiny than usual is being placed on reports like the Richmond Fed index, with the results in line with market expectations for January.
First Cut: Richmond Fed Manufacturing Composite Index in contractionary territory for a second month at -2 in January after -8 in December. https://t.co/UBItbeIbPs pic.twitter.com/lLpKWiUsRy
— Whetstone Analysis LLC (@AnalysisLlc) January 23, 2019
Market Reaction
The price of gold ticked slightly upwards following the soft manufacturing report, trading at $1,282.58/oz with a session high of $1,286.51/oz and a low of $1,278.89/oz.
It’s possible that the report is offsetting selling pressure seen earlier in the session as the manufacturing industry is an indicator of the health of the US economy overall – however, the report should not come as a surprise with the market expectations for January’s index between -3 and -2.
