Manufacturing Meltdown Deepens as Richmond Fed Factory Survey Goes Even More Negative

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AP Photo/Alex Brandon

Factory activity in the U.S. central Atlantic region contracted in June for the second consecutive month, according to a survey from the Federal Reserve Bank of Richmond published Tuesday.

[Note: The Richmond Fed has issued a wide-ranging correction to its report on the June survey, changing nearly all the data below. A report with the corrected data is available here.]

“Incorrect data were initially reported on June 28 for the monthly Fifth District business surveys, because of an error related to the discontinuation of the average workweek index,” the Richmond Fed reported. “The data on the website was corrected and is now accurate.”

The Richmond Fed said its Fifth District Survey of Manufacturing activity’s index plunged to minus 19 in June from minus nine in May. Economists had expected the index to recover to a positive reading of two, according to Econoday.

Minus 19 is the lowest reading since May 2020, when the economy was staggering from the initial pandemic lockdowns.

Readings above zero indicate an expansion of activity. Negative readings indicate activity contracted.

The local business conditions index continued to decline in June, falling to minus 32. Firms also grew less optimistic about conditions in the next six months as the expectations index decreased to minus 19 in June from minus 13 in May.

The index is based on a survey of manufacturing firms across the Fifth Federal Reserve District, which includes the District of Columbia, Maryland, North Carolina, South Carolina, Virginia, and most of West Virginia.

On Monday, the Dallas Federal Reserve said that its index of general activity had also plunged deeper into negative territory, falling to minus 17.7 from minus 7.3 in April. The Empire State survey, compiled by the New York Fed, remained in contraction territory in June for the second month in a row, although it improved to minus 1.2 from minus 11.6 in May. The Philadelphia Fed declined for the third consecutive month to minus 3.3, the first negative reading on that index since 2020. The Kansas City Fed’s survey remains in positive territory but has declined for three months in a row.

New orders and shipments fell further into negative territory for the month. The new orders index fell to minus 38 in June from minus 16 in May. The shipments index declined from negative 14 to negative 29. Expectations for new orders fell deeper into negative territory while shipments improved from negative 4 to zero, indicating no improvement or deterioration is expected.

The employment index rose to 23 from eight, indicating that hiring expanded. The wage index slipped but remains at an elevated level, indicating that many firms continue to increase wages.

Manufacturers reported their prices were up 10.4 percent compared with 12 months ago, an acceleration of inflation from 9.6 percent in May. This matches the all-time high for this series hit in January. Inflation in prices received has risen for three consecutive months.

Prices paid moved down to show prices up 11.9 percent from a year ago, down from 15.1 percent in May. This partly reflects the fact that prices were already rising at an 11 percent pace in June of last year. June 2021 was the first time the Richmond Fed’s barometer of prices paid for materials crossed into double digits.

Manufacturers expect to increase their own prices 4.6 percent over the coming year and to pay 5.4 percent more for materials, both representing an easing from the 12-month expectations recorded in May.

 

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