Last month, economists were excited when the Richmond Fed Manufacturing index unexpectedly rose from 6 to 13. The excitement lasted one month.
A new Richmond Fed report for August came out this morning. The forecast range of economic activity for August was 8 to 15, with the Consensus Estimate at 10. The actual result was a goose egg.
Early indications on August factory conditions are mixed with Richmond the latest, coming in at a disappointing zero. Orders are flat this month at only 1 vs 17 and 10 in the prior two reports. And backlogs are in deep contraction at minus 15. Shipments are also negative at minus 4 and capacity utilization is at minus 5. Hiring is flat and price data are mute. This report follows last week’s big fall in the Empire State report and respectable readings in the Philly Fed and manufacturing PMI reports. All together, they point to a bumpy month for the still struggling factory sector.
Current Activity vs. Expectations
Diving into the Richmond Fed Manufacturing Report we see the same perpetual optimism that never seems to arrive.
Note the current conditions vs. expectations six months from now. Also note the level of inventories vs. current conditions.
For grins I downloaded historical data of future expectations. Let’s take a look.
Future Expectations
| Date | Shipments | Volume of New Orders | Backlog of Orders | Capacity Utilization | Vendor Lead Time | Number of Employees | Average Workweek |
|---|---|---|---|---|---|---|---|
| Jan-15 | 35 | 36 | 19 | 28 | 5 | 17 | 14 |
| Feb-15 | 41 | 34 | 16 | 33 | 7 | 18 | 16 |
| Mar-15 | 46 | 44 | 19 | 31 | 7 | 24 | 13 |
| Apr-15 | 44 | 37 | 24 | 31 | 9 | 21 | 18 |
| May-15 | 42 | 41 | 21 | 32 | 9 | 25 | 17 |
| Jun-15 | 39 | 35 | 13 | 31 | 1 | 19 | 14 |
| Jul-15 | 34 | 34 | 17 | 22 | 7 | 22 | 3 |
| Aug-15 | 28 | 29 | 16 | 27 | 4 | 13 | 7 |
Projections From Mars vs. Actual US Activity
| Date | Shipments | Volume of New Orders | Backlog of Orders | Capacity Utilization | Vendor Lead Time | Number of Employees | Average Workweek |
|---|---|---|---|---|---|---|---|
| Aug 2015 Actual | -5 | 0 | -14 | -4 | 6 | 5 | 8 |
| August 2015 Projection (From February) | 41 | 34 | 16 | 33 | 7 | 18 | 16 |
| September 2015 Projection (From March) | 46 | 44 | 19 | 31 | 7 | 24 | 13 |
I believe it’s safe to say September will look nothing like the projections made six months ago in March.
These look ahead forecasts are so useless they may as well be from Mars. Yet, economists perpetually point to them as if they offer some sort of insight as to what will happen.
Mike “Mish” Shedlock
