Question of the Day
When Atlanta Fed president Dennis Lockhart spoke yesterday of momentum and the possibility of April rate hikes, did he have advance notice of the Richmond Fed manufacturing data released today?
I ask because today the Richmond region manufacturing index had the biggest change in 23 years of reporting.
The Richmond Fed diffusion index reading of +22 blew well past the Econoday Consensus estimate 0. This was the biggest surge in 23 years, to the highest reading since 2010.
Highlights
Small sample sizes are the norm for anecdotal reports on the manufacturing sector, a factor that often leads to volatility as is evident in the Richmond Fed index for March which, at plus 22, has bolted out of the negative column with a fury. This is the strongest reading since April 2010 and shows the greatest month-to-month change in the report’s 23 years of data.
New orders are surging, up 30 points in the month to 24 with backlog orders up 15 points and back in the positive column, though just barely at 1. Shipments are up 38 points to 27, capacity utilization is up 22 points to 17 and the workweek is up 11 points to 16. Wages, in a positive indication for inflation, are up 10 points to 20, though both input costs and selling prices remain subdued. Hiring is steady and solid at 11.
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.
Recent History
The Empire State and Philly Fed reports both ended long runs of contraction with positive indications for March, yet positives are not expected for the Richmond Fed’s manufacturing index which is expected to come in at zero to indicate no change relative to February. Richmond had been holding up better than other regional reports but it did slide in February, to minus 4 with both new orders and backlog orders moving into contraction.
Richmond Fed Manufacturing Index
The above chart from the Richmond Fed Survey.
Bubbly Expectations
Looking ahead to the next six months, manufacturers were bubbling over with enthusiasm.
Manufacturers anticipated robust business conditions during the next six months. Firms expected faster growth in shipments and in new orders in the six months ahead. Additionally, survey participants looked for increased capacity utilization and expected order backlogs to grow. Producers looked for vendor lead times to lengthen modestly.
Survey participants’ outlook for the months ahead also included faster growth in average wages and the average workweek, with a pickup in hiring during the next six months. Over the next six months, manufacturers expected faster growth in prices paid and received.
What’s Going On?
That was a surprisingly benign amount of cheerleading from Bloomberg in light of the numbers.
As I said with the other manufacturing reports that went into positive territory, a snap-back of some sort was going to happen at some point.
Let’s not get overly excited. There are two problems of which Bloomberg mentioned one.
- Small Sample Sizes
- Diffusion Index Characteristics
The first is obvious. The second pertains to the quality inherent in simple yes-no questions.
For example, companies are asked whether or not orders are up. If they were down by 1,000 last month, and up by 3 this month, that counts as an increase.
Secondly, a tiny firm with an increase in three orders offsets a larger firm with a decrease in 500 orders.
Orders are in dollars, not numbers, I am just providing an easy to understand example.
The strength of the manufacturing rebound, if any rebound at all, is certainly in question.
Manufacturer’s expectations typically a strong contrarian indicator.
For more on Atlanta Fed president Dennis Lockhart’s expectations, please see Kaleidoscope Eyes. Lockhart gave a speech yesterday with a similar name.
Mike “Mish” Shedlock
So, more likely BS from the government. Have to make things look great!
Corporate bonds have been doing well the past month – better than Treasuries. And the gains seem to have started before Draghi announced his plan to buy a trillion in corporate bonds. Doesn’t that signal a possible upturn?
Only a matter of time. Someday pent up demand, through Fed coaxing and manipulation is going to launch money velocity into orbit, and on to Mars. Add a sense of it “all getting away” animal spirit inflationary expectations, and the rest will be history.
And, yes, as long as the Fed is the owner and creator of the currency in which everything is denominated, it will be in firm control.
Or, fight ’em if you like, but prepare to get burned.
I’m at the second spring auction in Minnesota; first auction last week for Cat Auction Services/ Iron Planet in St Cloud MN and second auction today Richie Bros. in Owatanna MN. I used to sell new and used heavy machinery here and Wisconsin. These auctions are social events for buyers and sellers contractors and truckers from the near area and since the.internet the entire world. Equipment sold here goes anywhere and every where. Some of it goes back to the owner or. Scrap yard some just stays here as it doesn’t get sold and owners have use for them or they are simply to expensive to
Move again. In 30 plus years I have never seen sold at the last auction still sitting here from the season or sale last fall. Why is that? What’s up?
I questioned hundreds of otcustomers and multiple numbers of colleagues. Bottom line Nobody is working and nobody is buying new or used. If the manufactures know something they sure aren’t sharing it. If the government is letting contracts they should publish and take bids. If the oil drillers in North Dakota are going back they should be hiring. Bottom line nobody is doing anything. Fleets are standing still And have been for quite some time. So much so that not even the auctions can move the iron. Of course it will be interesting to see what’s left here for the July sales. And what’s been traded in .that will be liquidated. Bottom line is The economy is “as is where is “nothing is moving and money is not either.
Tons of new construction in the big cites. Also, freeways jammed with folks commuting to jobs.
It’s a tale of 2 cities. Coastal areas and large cities booming. Rust belt and fly over just hanging on or hurting.
I have been unable to determine if US companies headquartered in the US count their products manufactured in Mexico, China or elsewhere in total or by location of actual production.
For example where do these units get counted?
The Cadillac Escalade EXT and SRX, Chevrolet Avalanche, Chevrolet Aveo, Chevrolet HHR, Chevrolet Silverado and Silverado Hybrid, Dodge Journey, Dodge Ram 2500, Dodge Ram 3500, Dodge Ram 4500, Dodge Ram 5500, Ford Fiesta, Ford Fusion and Fusion Hybrid, GMC Sierra and Sierra Hybrid, GMC Sierra Crew Cab, Honda CR-V, Lincoln MKZ and MKZ Hybrid, Nissan Sentra, Nissan Versa, Volkswagen Jetta and Volkswagen Jetta SportWagen are all assembled in Mexico.
http://get.smarter.com/qa/business-finance/cars-made-mexico-9840a65c7dc803?ad=semD&an=gemini_s&am=broad&o=37037
Sure, why not?
Inventories / Sales gets worse every month.
Richmond is tobacco HQ USA. Those new orders are for Cuban cigars.
“Secondly, a tiny firm with an increase in three orders offsets a larger firm with a decrease in 500 orders.
Orders are in dollars, not numbers, I am just providing an easy to understand example.”
Not following this; if total dollars are being measured then size of firm/# of orders are irrelevant correct so there is no “offset”?
Orders either went up, down, or stayed the same.
If orders went up by $10,000 at one company and down $2,000,000 at another – those offset.
Such is the nature of a diffusion index.
+1 gets recorded for up
-1 gets recorded for down
0 gets recorded for no change
A reading of +22 indicated 22 more ups than downs
Amounts do not matter
Mish
The existing housing sales data does not support this FED manufacturing report.
Excellent article, Mish. This survey sounds like an elementary school dumbed-down exercise. I am surprised someone has not developed a better measurement; or perhaps they have, and we do not know about it.
For example, something like the income tax withholding receipts mentioned in previous posts as an alternative to all the flawed and misleading job surveys.
Pingback: So Much For Escape Velocity—–Q1 GDPNow Forecast Plunges to +0.6% | David Stockman's Contra Corner