Richmond Fed Manufacturing Sample Shows Weakness

Many of the regional factory samples continue to show weakness, including last week's Empire State report and today's Richmond Fed report where the headline composite index remains in contraction at minus 2 vs December's minus 8. This index had been as high as 29 as recently as September but is now posting its lowest readings in more than two years.

And based on new orders at minus 11 and minus 9 the last two months, the composite won't be showing much strength in next month's report for February. Shipments are at minus 8 this month and input costs are easing. Employment is still very strong at 19 but here too won't be getting a lift from backlogs which are in deep contraction at minus 21 in January and minus 18 in December. The assessment of local area business conditions is also decidedly negative, at minus 11 after December's minus 25.

Whatever weakness small sample reports like this have been picking up, definitive data on the factory sector proved very strong at least in December as manufacturing production in last week's industrial production report surged an unexpected and very strong 1.1 percent. Another indication of strength came from last week's regional report from the Philly Fed. Yet when economic indications turn mixed as they are now, the signal is likely to be one of moderation for a factory sector faced with slowing in global markets and uncertainty and dislocations tied to tariffs.