Richmond Fed Confirms Strengthening Manufacturing Sector

Backlogs were flat this month moving from a negative -14 to just above the neutral point at 1.0. Capacity utilization rose at a faster pace, pushing the index reading up 22 points to 17.

Inventories of finished goods slowed somewhat compared to February, as did inventories of raw materials.

The employment index gained two points to a solid expansion reading of 11. Wages and workweek length also increased.

Prices for raw materials in March advanced at annualized 0.60 percent rate from 0.16 percent. Finished goods prices also rose at a faster price, registering a 0.40 percent annualized rate from 0.29 percent. Raw and finished prices are expected to continue to grow during the next six months.

Manufacturers are predicting robust business conditions for the next six months. Shipments and new orders are expected to be strong with a faster increase in backlogs and longer lead times. The capacity utilization index is expected to gain another nine points.

More firms expect to add workers in the next six months and see a slight increase in average wages. Manufactures expressed more hesitancy towards capital expenditures, anticipating a slower rate of spending compared to February’s future expectation.

Bloomberg warns that manufacturing reports are often based on small sample sizes which can lead to volatility.

Bloomberg Business writes, “One regional report is only one regional report and one month is only one month, but this report does confirm the strength in last week’s Empire State and Philly Fed reports and, unlike this morning’s manufacturing PMI, points to new momentum for the manufacturing sector, momentum that may raise talk of easing headwinds from exports and energy equipment.”

The PMI referred to is the PMI Manufacturing Index Flash which indicated no significant change for March with a preliminary reading of 51.4 from a final reading of 51.3 in February. The final PMI Manufacturing Index for March will be released on April 1.