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Richmond Fed Turns Positive

09/25/2012

For most of the summer, domestic and global manufacturing figures have disappointed the markets and provided evidence that the sector’s growth has stalled. This morning Richmond Fed Index was reported at +4, the first positive index reading since May. Last month’s reading was -9. In fact this is the first of the major regional manufacturing indices to turn positive in multiple months (Figures 1.1-1.5).
 
I expect this is an alert to gauge and analyze upcoming data more closely to determine if this truly is a positive momentum shift. Additional evidence is needed, however, before suggesting changes to the portfolio.
 
On Monday, October 1, more evidence comes in the form of the monthly ISM Manufacturing Index. Last month for the third consecutive month, a sub-50 reading was posted for the ISM, with a very weak “new orders” to “inventory” ratio. Given this morning’s positive Richmond Fed number, I would expect consensus estimates for Monday’s ISM will rise back above 50, with a range of 50.5 to 51.0.
 
This morning’s report was a positive surprise, for sure, but until further evidence is provided, continue to favor “intangible services” over “physical goods” in the portfolio.
 
Within this morning’s Richmond Fed Manufacturing Index report…
 
•  Shipments improved to +9 from +1 last month.
•  New orders increased dramatically to +7 after readings of -20, -25, -7, and -1 for the previous four months.
•  The one sub index that did not improve was employment, which remained unchanged at -5.
 
Figure 1.1 Richmond Fed Regional Manufacturing Index Year To Date

Source: Bloomberg
 
Figure 1.2 Empire State Regional Manufacturing Index Year To Date

Source: Bloomberg
 
Figure 1.3 Philadelphia Fed Regional Manufacturing Index Year To Date

Source: Bloomberg
 
Figure 1.4 Dallas Fed Regional Manufacturing Index Year To Date

Source: Bloomberg
 
Figure 1.5 ISM Manufacturing Index Year To Date

Source: Bloomberg


 

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