Richmond Fed Factory Gauge Slips Back Into Contraction — Evening Brief – 09.22.26

Manufacturing activity in the central Atlantic region contracted modestly in September as shipments and new orders weakened, adding to evidence that U.S. factory conditions remain uneven despite continued hiring and expectations for future growth.

The Federal Reserve Bank of Richmond’s composite manufacturing index fell to -2 from 4 in August, slightly below the consensus estimate of -1. September marked the index’s first negative reading since March.

Two of the gauge’s three components moved into contraction. The shipments index dropped to -5 from 11, while new orders fell to -6 from 3. The employment index offered a counterpoint, rising to 7 from -2 and indicating that manufacturers added workers even as current demand softened.

Companies remained optimistic about the next six months, with forward-looking indexes for shipments and new orders firmly positive. However, the expected employment index declined to 8 from 20, suggesting firms anticipate hiring at a slower pace.

Perceptions of the broader operating environment also deteriorated. The local business conditions index fell to -6 from 4, while its forward-looking counterpart declined to 10 from 16.

Inflation pressures presented an additional concern. Manufacturers reported that growth in prices paid accelerated notably, while growth in prices received increased only slightly. Firms nevertheless expected both measures to slow during the coming year.

The survey covers manufacturers in the Richmond Fed’s Fifth District. Its September decline aligns with an August drop in national factory production, which fell 0.3% after seven consecutive monthly gains, although regional surveys do not always move in tandem with national output.