I stopped posting the Fed regional reports because diffusion index have huge problems and there are a built-in survival and reporting bias issues as well.

The December Richmond Fed Manufacturing Report contains some interesting stats this month, so let's take a look.

Richmond Fed Activity Components

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Key Activity Index Stats

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  1. Shipments -25
  2. New orders -9
  3. Order Backlog -18
  4. Local business condition -25
  5. Finished goods inventory +13

Twilight Zone Employment

  1. Number of employees +14
  2. Average workweek +3
  3. Availability of skills -28

Shipments crashed, inventories are up, new orders are down, business conditions are terrible, and there are no skilled workers available to hire.

Yet, supposedly, employment and the average workweek are up.

I suspect diffusion index magic, something like this: A handful of companies hired one or two more workers, offsetting those who fired hundreds because by diffusion magic, 1=100. 1 also equals 200, 500, and 33.

Diffusion indexes measure direction, not amount. Thus, one company firing 100 and another hiring 1 nets to zero.

Mike "Mish" Shedlock

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