Academic journal article Economic Quarterly - Federal Reserve Bank of Richmond

Gauging Manufacturing Activity: The Federal Reserve Bank of Richmond's Survey of Manufacturers

Academic journal article Economic Quarterly - Federal Reserve Bank of Richmond

Gauging Manufacturing Activity: The Federal Reserve Bank of Richmond's Survey of Manufacturers

Article excerpt

Midmorning on the second Tuesday of each month, the Federal Reserve Bank of Richmond posts the results of its latest survey of of Fifth District manufacturers. The survey provides a comprehensive set of indicators of business conditions within the region's manufacturing sector. Survey participants share first-hand knowledge of recent changes in manufacturing activity at their companies and offer insights into expected developments six months ahead. Their compiled responses provide unique information on a broad range of manufacturing activities, including shipments, new orders, employment, and capacity utilization.

The survey of manufacturers is a valuable tool for Federal Reserve research staff responsible for monitoring the Fifth District economy.l It is also a source of information for analysts outside the Federal Reserve System seeking measures of the strength of manufacturing in the area. Interest in such regional economic data has grown rapidly in recent years, particularly among analysts searching regional data for clues to the future direction of the national economy. Financial press coverage of regional manufacturing and business condition polls has expanded as well. From time to time, the media cites the Federal Reserve Bank of Richmond's (Richmond Fed) survey in reports on economic activity or business developments.2

This article explains the techniques employed in gathering data and compiling results for the Richmond Fed's manufacturing survey. It also evaluates the survey's usefulness as a tool for economic analysis and compares survey indexes to aggregate manufacturing data and to indexes from similar surveys conducted by the Federal Reserve Bank of Philadelphia (Philadelphia Fed), the Federal Reserve Bank of Atlanta (Atlanta Fed), and the National Association of Purchasing Management (NAPM). The analysis indicates that the Richmond survey not only contributes to a better understanding of the District's manufacturing sector but may also provide timely indicators of changes in several closely watched national manufacturing data series.

1. PURPOSE AND HISTORY OF THE SURVEY

The Richmond Fed's survey of manufacturers was developed to gather timely and consistent data on manufacturing activity in the Fifth District. It is one of several research tools employed by the Bank's research staff to evaluate business conditions in the District and to collect the regional economic information needed by the Federal Reserve System to carry out effective monetary policy. Regional economic activity is tracked by each of the 12 regional Reserve Banks in the System, and their reports of changes in economic conditions around the country often receive considerable attention in monetary policy deliberations.3

The survey is the source of much of the manufacturing information presented by the Richmond Fed in its periodic reports on District economic conditions. These reports are prepared several weeks in advance of meetings of the Federal Open Market Committee (FOMC), which normally convenes eight times a year.4 Each regional Reserve Bank produces such a report; these reports are compiled into a document informally referred to as the "beige book." The manufacturing survey is also a source of timely information for the development of policy recommendations made by the president of the Richmond Fed at FOMC meetings.

The survey of Fifth District manufacturers was initiated in June 1986. From 1986 to 1993, it was conducted every six or seven weeks, in a cycle directly linked to the preparation of the Federal Reserve's beige book.5 Quantitative data from the survey enhanced the information contained in the District's beige book reports by supplementing anecdotal information acquired from manufacturing contacts through telephone conversations. Survey data also offered a timelier alternative to "official" manufacturing data released by government agencies or trade organizations. Most of these data series are available only after a lag of several months or more, thus limiting their usefulness in evaluating current economic conditions. …

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