uploads///Richmond Fed

Manufacturing activity keeps improving in the Mid-Atlantic region


Dec. 4 2020, Updated 10:52 a.m. ET

The Richmond Fed Manufacturing Survey looks at business conditions in the Fed’s fifth district, which covers Washington, DC, Baltimore, Richmond, and Charlotte

The Richmond Fed Manufacturing Survey is sent out to companies in the Mid-Atlantic states. It covers current business conditions, shipments, new orders, backlog, and inventory. It’s similar to the other surveys put out by some of the other Federal Reserve districts, like the Chicago Fed National Activity Index and the Empire State Manufacturing Survey.

It weights shipments 33%, new orders 40%, and employment 27%. It also asks respondents about their forecast for the next six months.

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While it isn’t necessarily a market-moving index, it provides a top-down view of how the economy in general is doing, at least in the Mid-Atlantic region. It’s important to note that Washington, DC, is part of the index. Business there ties heavily to government spending, which may or may not correlate with economic growth.

Manufacturing activity grew somewhat in August and the outlook remains optimistic

The index of overall activity rose 5 points in August to 12 from 7 in July. Shipments rose 7 points, and new orders rose 8 points. Capacity utilization increased, although employment-related indicators fell.

Many participants noted that raw material pricing was increasing, and finished goods pricing finally rose as well. For the last few surveys, manufacturers haven’t been able to pass along price increases to customers. This may be changing, which would be music to the Fed’s ears.

Regarding the outlook, respondents were slightly more optimistic about the future than they were a month ago. The index for expected shipments rose 12 points, and expectations about future hiring rose 7 points.

Implications for homebuilders

Overall, the report shows the economy picking up a little—at least in the Mid-Atlantic region. This index is notoriously volatile, so it’s important to look for trends. At the moment, there don’t appear to be any trends.

The homebuilder with the most exposure to the Richmond area is NVR Corp. (NVR), but we’re entering the seasonally weak period for the builders.

The West Coast housing market seems to be cooling, and other previously tepid markets are picking up. That said, the Richmond Fed index covers the Washington, DC, area, which lives in its own economic world. The area’s insulated from the economic winds that seem to hit everyone else.

The other surveys seem to be showing manufacturing increasing in general. This trend is good news for builders like PulteGroup (PHM), D.R. Horton (DHI), and Lennar (LEN).

Investors who want to invest in the homebuilding sector as a whole should look at the S&P SPDR Homebuilder ETF (XHB).


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