Why the Richmond Fed Manufacturing Index is important to investors

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Richmond Fed Manufacturing Index

Conducted by the Federal Reserve Bank of Richmond, this monthly survey of manufacturing activity gauges the direction of manufacturing in the Fifth District of the United States.

Stock investors see growth in manufacturing activity as a positive sign. Their investments include ETFs like the SPDR S&P 500 ETF (SPY), the iShares Core S&P 500 ETF (IVV), and the iShares S&P 100 ETF (OEF).

Holders of bond market funds like the iShares Barclays Aggregate Bond Fund (AGG) or the Vanguard Total Bond Market ETF (BND) watch out for inflationary pressures that tend to build up when economic activity gathers pace.

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Measurement

The Richmond Fed manufacturing indicator is based on responses from approximately 100 respondents whose firm type, firm size, and location collectively match the profile of overall manufacturing in the fifth district. Manufacturers provide information on current activity, including shipments, new orders, order backlogs, and inventories. Plus, these manufacturers also provide information about employment conditions, prices, and their expectations of business activity for the next six months.

The headline index is a weighted average of:

  • Shipments (33%)
  • New orders (40%)
  • Employment (27%)

Survey result

The results of each survey are out on the fourth Tuesday of the month. The latest estimate, which is the survey result for November, will be out on Tuesday, November 25. In October, the index had accelerated to 20 from September’s 14, driven by the new orders, shipments, and employment components.

The next part of this series looks at the Chicago PMI, another key indicator of business and economic activity in the US.

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