Manufacturers activity in the Fifth District continued to expand for the sixth consecutive month in April, with the Richmond Fed Manufacturing Index falling just 2 points to 20, beating analysts' expectations of a sharper decline to 16. Following the prior month's 5 point increase, which took the index to the highest level since April 2010, the smaller than expected decline shows that the strong current conditions and optimism reported in March remains virtually unabated. The Richmond Fed noted that this was the first time that the index remained at or above 20 for two consecutive months since 1994. Moreover, leading the strength of the survey report was the important index for shipments, which rose 8 points to 25, while the volume of new orders remained unchanged at a very strong 26.
Leading the declines among the components, however, was employment, with the number of employees index falling to 15 points to 5 and the average workweek dropping 13 points to 8, though wages remained unchanged at 20.
Also weakening though remaining positive was the backlog of orders, which fell 10 points to 4, and vendor lead times, declining 6 points to 2. Capacity utilization strengthened further, however, rising 1 point to a solid 22.
Manufacturing executives continued to be exceptionally optimistic in looking 6 months ahead, with an overwhelming net 42 percent expecting shipments to increase, down just 2 points from the March reading, and a net 46 percent expecting the volume of new orders to grow, also down just 2 points. Noteworthy here is a 9 point gain in expected increased capital expenditures to 26.
Manufacturers reported stronger acceleration in prices paid and slower growth in prices received. Looking ahead, manufacturers expected mildly stronger growth in prices paid and prices received than in March.
The improvement in conditions and the outsized optimism of manufacturing reported in the Fifth District, while exceptional, is mostly in line with other strong regional manufacturing reports, and still awaits confirmation by data from Washington. The decline in employment, however, may be indicating that employment strength may have peaked.