The Richmond Fed’s July Index Is Good News for Industrial Sector
US Industrial Sector Buoyed by Positive Indicators for July
The Richmond Federal Reserve Manufacturing Survey
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 (SPY) (IVV). Stock investors see growth in manufacturing activity as a positive sign. US industrial sector (XLI) firms such as Northrop (NOC), Stericycle (SRCL), and Raytheon (RTN) ended higher at the market’s close on July 29.
At the same time, the holders of bond market funds such as the iShares Core Total US Bond Market ETF (AGG) or the Vanguard Total Bond Market ETF (BND) watch for inflationary pressures that tend to build up when economic activity gathers momentum.
New orders and shipments rise, hiring is muted
The Richmond Fed’s manufacturing indicator is based on responses from approximately 100 participants in the fifth district. Manufacturers provide information on current activity, including shipments, new orders, order backlogs, and inventories. These manufacturers also provide information about employment conditions, prices, and their expectations for business activity for the next six months.
The headline index is a weighted average of:
1. shipments – 33%
2. new orders – 40%
3. employment – 27%
The July estimate for the headline index accelerated to 13 from 6 in June, driven by strength in new orders, shipments, and capacity use. Employment was, however, slow in the month of July, according to the report. The report validates the industrial sector rebound suggested by the Dallas Fed’s manufacturing index, as discussed in Part 2.
A rebound in the industrial sector also indicates increased consumer and business activity. The consumer sector has delivered decent returns despite a weaker consumer confidence report in July.
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