Manufacturing activity in the Fifth District expanded for the twelfth consecutive month in October though at a slower than expected pace, with the Richmond Fed Manufacturing Index shedding 7 points from the September reading to 12. Driven by a notable drop in the shipments component of the index, which fell from 22 to 9, the decline exceeded the range of analysts' expectations and put the index sharply below the consensus forecast of 20.
Most of the current conditions components of the index also registered declines, including the volume of new orders, down 3 points to 17, backlog of orders, down 1 point to 7, and capacity utilization, down 9 points to 7. Even the employment front saw weakness, with the number of employees component falling 5 points to 10 and the average workweek down 8 points to 8.
But vendor lead did rise 3 points to 18 and in the most positive element of the report, wages finally came to life, rising 7 points to 24, the highest reading for the component since May 2000.
Expectation components remained highly optimistic, led, in contrast with the current conditions reading, by shipments, up 7 points to 50. Capital expenditure expectations also bounced backed from a 12 point drop in the prior month and were up 9 points to 27.
Inflation pressures were stable and moderate in both prices paid, at a 1.77 percent annualized rate, and prices received, at 1.21 percent. Price expectations were also stable, running at around 1.90 percent, with a slight pickup in expected prices received.
Today's report points to a deceleration in Fifth District manufacturing activity to a more moderate growth pace, but optimism among manufacturers remains undaunted and may even be on the rise. It also offers a small shred of evidence to the Fed that wage pressures may be on the rise.