Manufacturing activity in the Fifth District expanded for the fifth consecutive month in March, with the Richmond Fed Manufacturing Index unexpectedly rising 5 points to 22, the strongest reading since April 2010. Analysts were expecting a retracement down from the February reading, which had also recorded a 5 point increase over the prior month. The improvement was broad based, with 7 of the 8 current conditions components of the index rising, led by employment measures, with the number of employees index rising 10 to 20, wages up 6 to 21, and average workweek up 5 to 21. But other business activity measures also improved, especially capacity utilization, up 6 to 21, while new order volumes rose from a strong 24 to 26, shipments increased by 1 point to 17, and backlog of orders rose 6 points to 14. The lone decliner was vendor lead times, which fell 1 point to 8.
The outlook for the next six months by manufacturing executives continues to be optimistic, though not as exuberantly as in February. For example, expected shipments fell 9 point to 44, expected new orders fell 5 points to 48, and capital expenditures declined 10 points to 17. Other measures showed optimism growing, however, especially on the employment front, where wages, for example, rose 10 points 40.
Manufacturers reported that the growth in prices paid and prices received slowed slightly from the previous month, and their expectations for price growth in the 6 months ahead moderated as well.
The robust improvement in the state of manufacturing reported by the Fifth District is in line with strength seen in other regional reports, which however has not yet been confirmed by similar strength in actual factory data out of Washington.
The Richmond Fed's manufacturing index has, like other regional Fed surveys, been signaling significant strength. New orders and backlogs were very strong in the February report and are expected to underpin strength in March. Forecasters are calling for steady and solid strength at 15.0.