Manufacturing activity in the Fifth district did expand for the seventh consecutive month in May, but just barely, with the index falling sharply by a surprisingly large 19 points to an almost flat reading of 1. The big decline from the lofty levels of the two previous months was a surprise to most analysts, who expected a more modest decline. Leading the steep fall were very big drops in some of the strongest components of the index previously -- shipments, which dove 27 points to a minus 2, new orders, down 26 points to 0, and capacity utilization, down 31 points to minus 9. Also falling among the current conditions components of the survey was the backlog of orders, off 19 points from April to minus 15, and the average workweek, down 11 points to a minus 3. But employment remained solid otherwise, with wages rising 2 points to 23 and and the number of employees up 1 point to 6.
Looking ahead, manufacturing executives are still very optimistic, and while expectations measures did fall from the exuberant readings of the prior months, the declines are much less pronounced than in the current conditions part of the survey. Expectations for shipments fell 3 points to 39, the volume of new orders was down 11 points to 35, capacity utilization off 14 points to 29 and the number of employees as well as the average workweek down 5 points each at 20 and 8, respectively. Only capital expenditures are expected to increase, and were up 8 to 34.
Manufacturing executives reported that the prices they paid for goods, as well as the prices they received, rose at a more moderate rate than in the previous months.
The Richmond Fed's manufacturing index wasn't the first regional report to begin moving higher but its strength, like that of the Philly Fed, is enormous, at 22 in March and 20 in April for the first back-to-back 20 showing since 1994. Orders and shipments have been showing unusual strength. Econoday's consensus for the April index is 15.0.