Records in Richmond

Apr 22, 2025

US economic data was again light this morning with the only releases of note being regional Fed activity indices: a services index out of the Philly Fed and the manufacturing and services indices out of Richmond. As we noted through our Five Fed Composite last week, regional Fed releases have shown a significant deceleration in activity, and today’s release out of Richmond reaffirmed that. For the headline manufacturing number, there was a decline from -4 in March down to -13 this month. That indicates moderate contraction in activity, albeit similar and lower readings were observed from July to November last year.

Although the composite has seen lower readings relatively recently, April’s reading is still a bottom decile print for the history of the data going back to the 1990s. Breadth this month was also horrible with only six categories rising (not all of which are positives like inventories and prices) versus 10 categories falling month over month. In addition to weakness in current condition categories, expectation indices were especially weak.  Across expectation indices, there were multiple record lows or near record lows. Those same sorts of records could also be observed for month over month changes. For example, expectations for number of employees had never fallen by more in a single month.

Perhaps one of the more concerning readings is in regards to demand adjacent categories.  New Orders fell 11 points month over month down to -15 (an 11th percentile reading) while shipments also fell double digits to a 5th percentile reading. The expectations counterparts of those categories were even worse as both registered record lows. In other words, at no point of COVID, the Financial Crisis, or the 2001 recession were the region’s firms this pessimistic regarding future demand.

Paired with the weakness in demand expectations was a concerning pickup in inflation which has also been seen across a range of other indicators.  Current conditions of prices paid have already picked up materially, rising to a 5.37% annualized rate.  While that series did see readings that were roughly three times higher at the post-pandemic peaks in inflation a few years ago, expectations at 8.38% are sitting at a new record.  Prices received have also been on the rise but are currently much lower. Current conditions are only at a 2.65% rate whereas expectations are surging to 5.6%, the most elevated reading since March and April 2022.

In addition to the record lows in demand expectations, expenditures have also taken a big hit. The Richmond report includes expenditure readings for three separate categories: Equipment & software, capex, and business services.  Each of those three have been in decline since interest rates began ticking higher in early 2022, and since tariff news came to the forefront  this year, they have taken a sharp leg lower (reversing post-election gains) and now have only been lower during the depths of COVID.

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