Richmond Manufacturing Index

What Is the Richmond Manufacturing Index?

The Richmond Manufacturing Index is a widely followed month to month economic indicator of a region that incorporates Middle Atlantic states. The survey centers around manufacturing activity inside that region and measures sentiment and expectations among executives in the private sector. Types of manufacturing range from food and material to created metal products and machinery.
The survey is officially known as the Fifth District Survey of Manufacturing Activity, which alludes to the area managed by the Federal Reserve Bank of Richmond — one of 12 Reserve Banks under the Federal Reserve. The Fifth Federal Reserve District covers the District of Columbia, Maryland, North Carolina, South Carolina, Virginia, and the majority of West Virginia. The survey is additionally alluded to as the Richmond Fed Survey.
During the 1980s, the Richmond Fed was entrusted with fostering a survey on its region since there had been no regional survey comparable to the national survey on manufacturing, known as the purchasing directors' index, which is gathered by the Institute for Supply Management (referred to then as the National Association of Purchasing Management).

Who Compiles the Richmond Manufacturing Index?

The Richmond Fed previously released its manufacturing survey in 1986, and it was directed like clockwork. It moved to a month to month design in 1993, and in view of the prevalence of its survey on manufacturing, the bank spread out to cover the services sector. That survey is known as the Fifth District Survey of Service Sector Activity.
As indicated by the bank, the manufacturing survey is shipped off executives at manufacturers inside the bank's district two business days after the previous month's outcomes are distributed, and the data assortment closes three business days before the outcomes are distributed. Respondents are posed a series of inquiries to compare business conditions from the furthest down the line month to the previous month. The outcomes are then accumulated as diffusion indexes, which measure the dispersion of change — this is the same way that the purchasing administrators' index is calculated.
The survey on manufacturing covers various parts of business, for example, shipments, new orders, order excesses, capacity utilization (use of equipment), provider lead times, number of employees, average week of work, wages, inventories of completed goods, and capital expenditures. Normal inquiries incorporate whether nearby business conditions increased, diminished, or remained something similar, and whether those conditions will change in the next six months.
Investors and analysts center around the headline number of the Richmond Fed's composite manufacturing index. A perusing greater than zero recommends expansion in manufacturing, while a perusing of under zero shows contraction.

What Is the Formula for the Richmond Manufacturing Index?

The Richmond Fed involves the fundamental formula for the diffusion index in working out the manufacturing index and subindexes.

Starting around 2021, the Richmond Fed's business surveys covered 198 firms in manufacturing and 418 in the services sector.

Why Is the Richmond Manufacturing Index Important?

The survey is closely watched in light of the fact that, not at all like other leading economic indicators that are backed by data on prices and units, it depends on answers given by executives about their outlook on business conditions. The survey is many times seen as a dependable predictor of the economy. What's more, even however it covers a specific region, it is many times representative of manufacturing activity across the U.S.
Subindexes, for example, wages could show whether inflationary pressures are picking up, or whether companies are holding back on spending in the midst of worries of the economy slipping into recession.
Below is a graph of the Richmond Fed's composite manufacturing index north of a 10-year period, from mid-2013 to mid-2022.

The index's precarious decline agreed with the economy contracting around the beginning of the COVID-19 pandemic mid 2020. However, manufacturing got not long after in succeeding months.

When Is the Richmond Manufacturing Index Released?

The survey is released at 10 a.m. ET, on the fourth Tuesday of the month.

Impending Release Dates in 2022

Features

• The Richmond Manufacturing Index centers around new orders, employment, and shipments, among different areas.
• Data is received from many respondents in the manufacturing sector. It shows the outlook for their business for the next month as well with respect to the next six months.
• The Richmond Manufacturing Index is an index of manufacturing activity in the Fifth Federal Reserve District, which covers Maryland, North Carolina, the District of Columbia, Virginia, the vast majority of West Virginia, and South Carolina.