The Richmond Fed released their manufacturing index for October this morning. The report indicated the region’s manufacturing sector is still expanding but at a more modest pace. The composite index badly missed forecasts. A decline to 24 from 29 in September was expected, but the actual reading was far lower to a mere 15. Steep declines in shipments, new orders, and local business conditions were major contributors to this lower reading. While still positive, shipments fell sharply from 33 in September all the way down to 7 for October. New orders were stronger at 20, but still down from 34 last month. This was the second largest decline behind shipments. The overall breadth of this report left much to be desired as employment was the only index that rose. While there were more workers employed, the quality most likely did not match. Skilled workers available fell to its lowest level in the history of the data. The indices for wages and average workweek also both fell. Prices continued to grow with prices paid moving at a much more accelerated pace than prices received. Prices paid grew at its highest rate since May 2011.
Even with the indices indicating slower conditions this month, businesses remain optimistic looking out six months from now. Most indices saw gains based in the expectations category. The shortage of skilled workers does not seem to have an end on the horizon with that index moving even further past the current all-time low down to -25. While we have yet to see it in any substantial sense, wage growth saw the biggest gains. Even with higher wages, the businesses do not expect prices paid and received to be higher than they came in this month. With the New York Fed and Philly Fed reporting their gauges last week, we now have three of the five indices used as inputs for our Five Fed Manufacturing Composite Index.