Richmond Fed Manufacturing Index Holds at Minus 2 as New Orders Weaken

Manufacturing activity in the Federal Reserve Bank of Richmond’s district remained slightly negative in October, with its composite index holding at minus 2 as new orders weakened further. The index was also at minus 2 in September, after a reading of 4 in August. Shipments improved during October, but the recovery was not enough to lift the broader gauge above zero.

The new orders index fell to minus 8 from minus 6, and the measure of order backlogs dropped to minus 21 from minus 10. The employment index eased, although it remained positive. Taken together, the readings describe factories facing weaker incoming demand even as some measures of current activity stabilized.

New orders fall as shipments recover

Shipments improved, with their index climbing to zero from minus 5 in September. A reading of zero means the share of respondents reporting an increase is broadly matched by the share reporting a decrease, rather than indicating that the volume of goods shipped was unchanged in absolute terms. Its return to zero offered the clearest improvement among the survey’s three main components.

Incoming business was weaker. New orders slipped two points to minus 8, keeping that measure in negative territory for a second month. The backlog index deteriorated more sharply, falling 11 points to minus 21. Backlogs capture changes in orders that firms have received but not yet completed, so the deeper negative reading adds evidence of pressure on work in the pipeline. It does not, by itself, reveal how many dollars of orders were lost.

In the Richmond Fed’s calculation, the composite combines shipments, new orders and employment, with weights of 33%, 40% and 27%, respectively. That construction helps explain why the headline index failed to improve even though shipments recovered and employment remained above zero. New orders carry the largest weight, and the decline in that component offset much of the better shipments reading.

October extended the softer pattern that emerged in September. Manufacturing conditions were still modestly positive in August, when the composite stood at 4. September brought a move into negative territory as both orders and shipments declined. October did not bring a further drop in the headline measure, but the deterioration in orders and backlogs suggests the demand side of the survey remained weak.

Hiring cools and spending measures weaken

The employment index decreased to 3 in October from 7 in September. Both readings were above zero, which means a larger share of surveyed manufacturers reported increasing their workforces than reducing them. The lower October figure nevertheless indicates that the balance became less favorable. A regional diffusion index should not be read as a count of jobs created, and it cannot establish the direction of employment across the entire U.S. manufacturing industry.

Wage reports moved in the other direction, with that index rising to 20 from 17. This is another measure based on whether conditions rose or fell at responding firms, not a statement that wages increased by 20%. It suggests more respondents reported upward than downward movement in wages, even as the employment measure lost some momentum. The distinction matters because slower hiring and persistent wage pressure can appear in the same monthly survey.

Indicators tied to business spending were weaker. The capital expenditures index declined to minus 12 from minus 7, while equipment and software spending fell to minus 8 from minus 4. The measure of services expenditures also deteriorated, to minus 19 from minus 10. These readings do not specify the total value of purchases, but they show a wider negative balance of respondents reporting changes in these categories.

Other production-related measures added to the mixed picture. Capacity utilization was unchanged at minus 7, indicating that this part of the survey had not improved despite the rebound in shipments. The raw materials inventories index turned negative, falling to minus 2 from 6. Finished goods inventories held at 4. The different directions of these indicators caution against treating the unchanged composite figure as evidence that conditions were identical across factories or activities.

Input costs keep rising faster than selling prices

Price measures offered a separate concern for manufacturers. The reported growth rate of prices paid edged up to 7.12% from 7.08% in September. Prices received, a measure of what manufacturers charged for their products, increased to 5.27% from 4.19%. The October figures therefore continued to show faster price growth for inputs than for finished products, although the difference between those two reported rates narrowed.

Unlike the activity indexes, the Richmond Fed’s price measures report percentage changes over the previous 12 months. They should not be interpreted as diffusion-index readings or as monthly inflation rates. The gap between input and selling-price changes can be informative, but this survey alone cannot determine whether manufacturers’ profit margins rose or fell. Individual businesses face different costs, selling arrangements and product mixes that the headline price figures do not capture.

The Richmond Fed manufacturing survey covers the Fifth Federal Reserve District: Maryland, Virginia, North Carolina, South Carolina, the District of Columbia and most of West Virginia. Manufacturers report whether conditions have improved, deteriorated or remained unchanged, giving the bank a timely reading on its regional industrial economy. The composite index and its components are seasonally adjusted, and the diffusion format measures the balance of reported changes rather than the magnitude of changes in factory output.

That regional scope is important when comparing the Richmond results with nationwide indicators. A negative reading does not establish that U.S. manufacturing production contracted during October, nor does an improvement in shipments prove that regional production grew. It means that, among responding firms, reports of declining conditions outweighed reports of improvement on the relevant measure. Different parts of the country and different industries can move in opposite directions during the same month.

The next scheduled Richmond Fed manufacturing survey release is November 24. It will show whether October’s weaker incoming orders and shrinking backlogs persist, and whether the recovery in the shipments index is sustained.