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The Richmond Manufacturing Index beat market expectations for October with a rebound from -9 to 8, vastly surpassing market expectations of a drop to -14. Back in positive territory, the latest report is a positive indicator for the struggling manufacturing industry which has suffered under the escalating tariffs of the trade war.

Key Takeaways

• The Richmond Manufacturing Index jumped from -9 to 8, beating expectations of -14.
• The report shows strong expansion in the Fifth District manufacturing sector.
• The report states that the struggle to find skilled workers in the industry is ongoing and likely to continue.

The manufacturing industry saw some positive news after months of weakness as the Richmond Manufacturing Index rose into positive territory. Survey respondents reported growth in employment and in wages, with growth expected to continue in the near-term.

Shipments rose from -14 to 4, new orders rose from -14 to 7, and the number of employees rose from 3 to 13. The average workweek saw a 20 point change, rising from -10 to 10, and wages continued to grow with a rise from 15 to 24. Vendor lead time contracted from 7 to -3, finished goods inventories sunk from 13 to 5, and raw material inventories dropped modestly from 24 to 19. Prices paid and received both saw contraction. The Index is now at the highest level since April, when it reached a reading of 9.0.

Survey respondents pointed to an ongoing shortage of skilled workers in the manufacturing industry, which analysts believe may have helped offset layoffs that could have resulted from the industry downturn. Companies may be unwilling to downsize and part with employees due to the difficulty of rehiring them when the sector picks up again. The shortage of skilled workers is expected to continue.

First Cut: October Richmond Fed Manufacturing Index rebounds into positive territory. However, the index hasn't shown sustained upward momentum for most of this year. The outlook remains cautious and downbeat. https://t.co/Own7Iy35Mx pic.twitter.com/XVMCYXQd3x

— Whetstone Analysis LLC (@AnalysisLlc) October 22, 2019

The trade war has had a major negative impact on the manufacturing industry, with the ISM manufacturing index hitting a ten-year low earlier this month. Coupled with tame inflation pressure, weak business investment, and a general economic slowdown, recessionary pressures have been looming on the horizon. The slowdown is currently threatening the record-breaking period of economic expansion currently underway in the US, now at over a decade. Along with weak consumer prices, the data makes it likely that the Federal Reserve will cut interest rates for a third time this month.

Market Reaction

Gold prices are down on the day. Spot gold last traded at $1,484.24/oz with a high of $1,488.97/oz and a low of $1,481.72/oz. Gold prices may have faced selling pressure as a result of the unexpectedly strong manufacturing sector data. The manufacturing report may have offset upward momentum generated by the release of a housing market report showing weak activity in existing home sales.