The composite index for manufacturing activity in the Richmond Fed's district fell from 2 in June to -12 in July, its lowest reading since January 2013, as all three components — shipments, new orders, and employment — registered declines. Backlogs of orders also fell, reaching a value of −26, its lowest reading since April 2009. Firms reported worsening local business conditions, as this index dropped from 7 to −18, its largest one-month drop on record. However, respondents were optimistic that conditions would improve in the coming months.
The chart below shows the Richmond Fed's index, smoothed with a 7 month linear moving average, relative to the year on year change in real GDP. It's surprisingly good given that it covers only part of the country.
With an estimate for July's Dallas Fed data, made using a trend-extension program I wrote, this is what the extreme-adjusted average for all 5 Fed districts which produce a survey looks like:
The Dallas Fed reading for July might not be as negative as my trend-extension algorithm calculates, but even if we assume a modest rebound for the Dallas Fed in July, it doesn't change the picture: yes US economic activity stopped falling from January to May but looks as if it's sliding once again.
I've been wondering whether the US economy was picking up, but really, all the latest data suggests it isn't. We shall see—the Dallas Fed is out later today, and the ISM and the final figure for the PMI will be out in the next couple of days. It's importance is simple. The Fed's policy setting committee has said it is "data driven". If the data weaken again, the next Fed rate cute will not be the last. My shorter- as well as my longer-leading indices have turned up, but a rebound in the economy now seems much too soon. My indices suggest that's still six months away.
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