The Richmond Fed’s survey: The impact on transportation stocks



The Richmond Fed’s manufacturing survey

The Richmond Fed will announce the results of April’s survey on Tuesday, April 22. Unlike the Chicago Fed National Activity Index, which covers the whole country, the Richmond Fed’s manufacturing survey is based on survey readings of approximately 100 respondents whose firm type, firm size, and location collectively match the profile of overall manufacturing in the Fifth District. The Fifth District includes businesses in Washington D.C., Maryland, North Carolina, South Carolina, Virginia, and most of West Virginia.

Highlights from March’s reading

  • The Survey’s composite index reading declined by one point to -7 from -6 in February, as manufacturing sector growth fell further, chiefly due to the impact of adverse weather.
  • The shipments, wages, and prices paid, and prices received indices declined in March.
  • Both the new orders index and the jobs index were flat at -9 and 0, respectively.
  • The workweek index however, moved into positive territory, from -5 in February to 2 in March.
  • Retail sales expanded – the overall revenue index jumped from 0 in February, to 5 in March.
  • Retail sales for service sector industries increased at a decreasing pace – retail revenues index declined from 15 to 10 in March, stores also reported lower mall traffic.
  • Manufacturers however, were positive about future prospects over the next six months with both the expected shipments and orders indices almost doubling from February.

What to look for in April’s reading

  • Manufacturing may show a strong surge, partly due to the relatively low readings in February compared to other manufacturing indices which may show a stronger spike in April as a result. Also, the high readings in the expected shipments and orders indices in March should further boost the index.
  • Mall traffic and retail sales indices should also benefit due to the better weather in March.
  • Overall, the employment data should improve due to both the increase in output and sales, as well as a result of the national-level increase in non-farm payrolls to 192,000 in March.

About the Richmond Fed’s Survey of Fifth District Manufacturing Activity

This is a monthly survey conducted by the Federal Reserve Bank of Richmond. Respondents provide information on current activity, including shipments, new orders, order backlogs, and inventories and also provide feedback with respect to business expectations over the next six months. The headline number is the composite index for the current month’s activity. It is a weighted average of the shipments (33%), new orders (40%), and employment (27%) indexes. In the next section we will look at the manufacturing activity index issued by Federal Reserve Bank of Kansas City, which is due to release on Thursday, April 24. We will also look at the impact of the three manufacturing surveys on transportation and logistics companies in the S&P 500 Index (IVV) like Union Pacific Corporation (UNP) and FedEx (FDX). Both Union Pacific (UNP) and FedEx (FDX) are part of the iShares Transportation Average ETF (IYT) which tracks the Dow Jones Transportation Average Index. We will also consider the impact of the manufacturing indices on fixed income ETFs like iShares Floating Rate Bond (FLOT).

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