Richmond Fed Manufacturing Gauge Plunges as Demand Collapses and Inflation Still Rages

The growth of manufacturing in the central Atlantic region of the U.S. unexpectedly slowed in February to the slowest pace since September, according to a survey from the Federal Reserve Bank of Richmond released Tuesday.

The Richmond Fed’s Survey of Manufacturing Activity’s composite index dropped to one in February, barely in positive territory and down from January 8. Analysts had forecast the index would climb to ten after plunging from December’s reading of 16.

Scores above zero indicate growth so February’s reading came dangerously close to indicating an economic contraction in February.

The composite was weighed down by a plunge into negative territory in the indexes for shipments and new orders. Shipments cratered from 14 last month to -11 in February. New orders fell from 6 to negative three. The backlog of orders measure fell from 2 to -4 and capacity utilization dropped to -12 from four.

Vendor lead times remained near historic highs, indicating ongoing supply chain problems.

Despite the collapse in demand indicated by the shipments, orders, backlog, and capacity utilization indexes, inflation was still running extremely high. The prices paid index showed costs up 12.27 percent from a year ago, down a bit from January’s 14.32 and December’s 13.98. The prices received index showed the 12-month price gain at 8.77 percent from 11.27 percent in January, still above the December level of 8.26 percent.

The employment index increased to 20 from 4 in January, likely indicating a spree in hiring as the omicron-variant wave crested and then retreated.

The survey covers manufacturing first across the Federal Reserve’s Fifth District, which includes the District of Columbia, Maryland, North Carolina, South Carolina, Virginia, and most of West Virginia.