Richmond Fed Region Unexpectedly Bad; New Orders, Backlogs, Workweek Plunge

The already bleak manufacturing reports took another step for the worse today as evidenced by the Fifth District Survey of Manufacturing Activity by the Richmond Fed.



Volume of new orders, backlog of new orders, capacity utilization, and average workweek have crashed making the report details far worse than the headline reading.

Nonetheless, manufacturers remain optimistic.

"Producers anticipated positive business conditions for the six months ahead. They continued to expect steady growth in shipments and in the volume of new orders. The indexes for expected shipments and new orders strengthened to readings of 48 and 42, respectively."

It's been amusing watching the look ahead projections in these reports. They have been consistently wrong for months on end.

Economists Overoptimistic Too

Manufacturers and economists alike have been overoptimistic about manufacturing. The Bloomberg Consensus reading for the Richmond Fed region was for a strengthening to +3.

Early indications on the September factory sector are negative and now include a minus 5 headline from the Richmond Fed. New orders, unfortunately, are even more deeply in the negative column at minus 12 which points to even weaker activity in the months ahead. Shipments are already in the negative column for a second straight month at minus 3. And manufacturers in the region have already worked down their backlogs to keep up production with backlogs in deep contraction at minus 24 and minus 15 the last two months. Employment is in the plus column but just barely at 3 and it won't stay there for long if orders and production continue to weaken. Price readings are moderating further to round out an unpleasant picture of unexpected slowing.

More regional reports will be out in the next week or so. There is no reason to expect any of them to be good.

Mike "Mish" Shedlock