Growth of manufacturing activity in the Fifth District slowed more than analysts expected in January, with the Richmond Fed Manufacturing Index declining 6 points from December to 14. The moderating growth seen in the fifteenth consecutive monthly expansion continued December's deceleration from November when the index reached the highest level since 1993, and reflected decreases in the metrics for shipments, down 9 to 15, and employment, down 10 points to 20. Index components that also posted declines included capacity utilization, down 3 points to 13, and average workweek, down 6 points to 2.
Elements of continued strength are also indicated in the report, however, as new orders remained strong though unchanged at 16, while the backlog of orders rose by 9 points to 5. Vendor lead times rose 12 points to 18, and wages were up 2 points at 24.
Satisfaction with inventory levels for finished goods was unchanged at 17 while that for raw materials inventories was down 10 points to 14. Companies reported continued moderate price growth in both prices paid and prices received, while the level of price growth expectations for prices received declined.
Despite the moderation seen in current company conditions, manufacturing executives expressed continued optimism regarding stronger growth six months ahead, with expectations for shipments up 1 point to 45, volume of new orders down 8 points but still strong at 36, and backlog of orders up 3 points to 25.
The Richmond Fed manufacturing index has, like other regional manufacturing reports, been running at unusually high levels which made December's 10-point cooling to a still elevated 20 welcome news. Growth in new orders slowed by nearly 20 points in December to 16 and backlogs fell into contraction at minus 4. But shipments at 24 and employment at 20 both remained unusually strong and hint at the risk of overheating. The Econoday consensus for January's index is 18.