The Richmond Fed Manufacturing Index dropped sharply by 18 points to minus 3 in April, breaking a 17-month long string of expansion in manufacturing in the Fifth District by posting the first negative reading since September 2016. The sharp decline follows a 13-point plunge in March and came as a negative surprise to most analysts, whose consensus expectations were for a slight improvement to 16. Weighing down the index in April was a contraction in shipments, plummeting 23 points to minus 8, and new orders, which fell by a similarly sharp 26 points to minus 9. Several components still remained in expansionary territory, however, including employment, with the number of employees rising 1 point to 12 and wages up 5 points to 27.
Contraction in current conditions was also seen in capacity utilization, down 17 points to minus 4, backlog of orders, down 26 points to minus 4, and local business conditions, down 8 points to minus 1. But there were elements of strength that held out hope of a resumption of the expansion, led by capital expenditures, which rose 15 points to 31, and finished goods inventories, up 10 to 15.
The declines in business owners' assessments of current conditions were also reflected in significant declines in their expectations for nearly all business categories in the next six months, yet these expectations still remained very optimistic and well within expansionary territory.
Current inflation pressures rose slightly for prices paid, at a 2.43 percent annualized rate, but edged lower for prices received to a 1.46 percent annualized rate. Business owners expected roughly the same rate of inflation for prices paid over the next six months, while expecting the prices received annualized rate to rise to 1.91 percent.