A Chilly Turn: Richmond Fed Manufacturing Dips into Negative Territory for November

Well, it seems that brief flicker of optimism we saw in October among manufacturers in the Richmond Federal Reserve district has, regrettably, faded quite quickly. The latest survey results for November are in, and they paint a picture of cooling activity, with the composite manufacturing index dipping back into negative territory. It's a stark reminder that economic shifts can be rather fleeting, isn't it?

To put it plainly, the overall manufacturing index, which had surprisingly nudged up to a positive 3 in October, slid down to a concerning -5 this past month. That's quite a swing, and it signals a general contraction rather than expansion. The main culprits? New orders and shipments, which both took noticeable tumbles. New orders, arguably the lifeblood of any manufacturing operation, plummeted from a positive 1 to a rather bleak -10. Ouch. And as you'd expect, with fewer new orders coming in, shipments followed suit, moving from a positive 2 down to a negative 5.

It's no surprise, then, that order backlogs continued their contraction, holding steady at -18. There just isn't much work piling up, which can be worrying for future production schedules. On a slightly less stressful note, vendor lead times saw a marginal uptick from +1 to +2, suggesting suppliers aren't necessarily rushing to fulfill orders either. While a positive number here indicates longer lead times, the relatively small change implies things aren't getting drastically worse on the supply side, perhaps even easing somewhat due to less demand.

Now, for a bit of a silver lining, though it's certainly thinner than before: employment within the district continued to grow, albeit at a much slower pace. The employment index slipped from a healthy +6 to a modest +2. So, companies are still adding a few folks, which is good news for workers, but the hiring spree seems to be winding down. Similarly, wages are still on the rise – thankfully! – but the pace of those increases has softened a bit, moving from a robust +36 down to +25. People are still getting raises, which is always welcome, but perhaps not quite as generous as before.

When it comes to companies opening their wallets for investments, current capital expenditures showed modest growth, ticking down slightly from +10 to +8. That’s still positive, suggesting some ongoing investment, which is a good sign of continued, albeit measured, development. However, the future outlook for CapEx is where the real caution shows. Plans for the next six months flipped from a positive 1 to a negative 3, indicating businesses are tightening their belts and holding off on significant new investments for now. It’s a classic move when uncertainty looms, isn't it?

Looking ahead, the general mood isn't exactly buoyant, I must say. The six-month expectations index for the composite dipped further into negative territory, from -6 to a more pronounced -13. Both future new orders and shipments are anticipated to decline even more significantly. And quite tellingly, firms are now expecting employment to shrink, moving from a positive +3 expectation to a negative -5. That’s a pretty notable shift in sentiment right there. Even wage growth is expected to slow further, though thankfully remaining positive at +20. It seems a general air of prudence and perhaps a touch of pessimism has settled over the manufacturing sector in this region for the foreseeable future.