US Factory Activity Accelerated in December, Richmond Fed

Factory activity in the central Atlantic region of the US gained momentum in December compared with the previous month, according to a survey compiled by the Federal Reserve Bank of Richmond released Tuesday.

The Fifth District Survey of Manufacturing Activity’s composite index increased to 16 in December from 12 in November, above economists forecast of 12 in a poll carried out by The Wall Street Journal. Positive readings signal expansion, while negative readings indicate contraction.

The index is compiled by surveying manufacturing firms across the Fifth Federal Reserve District, which includes the District of Columbia, Maryland, North Carolina, South Carolina, Virginia and most of West Virginia.

The rise of the composite indicator was supported by increases in shipments and new orders. The shipments index rose to 12 from zero the previous month, while the new orders index increased to 17 from seven, signaling stronger demand.

The employment index–the third component of the composite index–fell to 19 from 34 but remained well into expansion territory.

Even though more manufacturing firms reported increasing employment than decreasing, respondents continued to report difficulty finding workers with the necessary skills and are expecting this difficulty to continue, the Richmond Fed said.

Backlogs of new orders registered their second highest index value on record, as vendor lead times remained high and inventories remained low, the report said.

However, the vendor lead time index decreased sharply to 35 from 62, in a tentative sign that supply-chain strains could be easing somewhat compared with the previous few months.

The average growth rate of prices paid and prices received by survey participants increased in December, and firms expect the growth rate of prices to slow over the next year, data from the survey showed.

Goods producers in the region were optimistic about the short-term outlook, with the future indexes for shipments, new orders and employment all rising compared with November.

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The survey including information on shipments, new orders, order backlogs, and inventories conducted by Federal Reserve Bank of Richmond provides information on current activity in the manufacturing sector (mailing 220 business organizations). The industry inflation can be seen from the survey. Generally speaking, a high reading appreciates (or is bullish for) the USD, whereas a low reading is seen as negative (or bearish for) the USD.