Richmond Factory Gauge Falls Off a Cliff
Manufacturing in the Federal Reserve’s Fifth District hit the brakes hard in July, and the yellow metal took notice. The Richmond Fed reported Tuesday that its composite manufacturing index collapsed to –20 from June’s already-weak –8, falling well below the consensus expectation of -2. Shipments, new orders, and employment all sank deeper into negative territory, underscoring broad-based fatigue among producers from Maryland down through the Carolinas. On the same day, spot gold touched an intraday high of $3,428 per ounce, a fresh reminder that nervous capital keeps migrating toward historically sound money whenever the real economy wobbles.
The survey’s details paint an even bleaker picture than the headline. Shipments slid to –18 from –5, and new orders cratered to –25 from –12. With backlogs plunging to –30, firms are chewing through existing work faster than new demand arrives—an ominous sign for near-term output. Capacity utilization echoed the weakness, tumbling to –14 after two months at –5. Finished-goods inventories, however, ticked up to 16 while raw-materials stocks stayed lofty at 17, hinting at the classic recessionary combo of softer sales and fuller warehouses.
Input costs eased marginally—prices paid rose 5.65 % over the past year versus 6.10 % previously—yet they remain well north of the Fed’s 2 % inflation target. Prices received fell to a 3.16 % annual increase, squeezing already-thin margins. Importantly, firms still expect input costs to climb another 5.67 % over the coming 12 months, and they think they can pass on only about 4.19 %. That forward-looking gap suggests profit pressure will intensify even if headline CPI drifts lower, challenging the popular “inflation is conquered” narrative.
There were a few shards of optimism. Future shipments improved to 11 and future new orders to 9, implying some executives hope for a modest rebound. Supply-chain kinks continue to unknot, with vendor lead times falling for a second straight month. Yet those green shoots are overshadowed by a sharply lower six-month employment outlook (–10) and moderating wage growth. When producers hesitate to hire, they’re casting a vote of no confidence in the broader policy environment—an environment still flooded with cheap credit and fiscal deficits that, in Austrian-school terms, have distorted real price signals for years.
Investors appear to agree. Gold’s $3,400-plus print on Wednesday signals persistent demand for an alternative store of value, even as crypto markets remain mired in regulatory crossfire and extreme volatility. Taken together, July’s Richmond numbers and bullion’s performance highlight a simple truth: the real economy is slowing faster than official inflation metrics, and businesses know it. Until policymakers address structural imbalances rather than papering them over with ever looser money, expect more factory-floor gloom.
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