In August, the Richmond Fed manufacturing index
extended its downtrend falling to the lowest level in more than two years. The headline index dropped from -1 to - 10, while the consensus was looking for a more moderate decline (to -5). The details show a similar picture with a sharp decline in shipments (-17 from -1) but also new orders (-11 from -5), order backlog (-25 from -18), capacity utilization (-14 from -6), vendor lead time (-4 from 8), number of employees (1 from 4), average workweek (-5 from 0) and wages (2 from 10) weakened significantly in August. Prices on the contrary picked up again, with both prices paid (4.16 from 3.41) and prices received (1.46 from 1.18) increasing again in August. Finally, also forward looking indicators weakened significantly. Weakness in the most recent regional business confidence indicators suggests that the US economy is cooling further down, raising fears for a double-dip recession. Nevertheless, the extremely depressed August data might be partially due to the US debt crisis and the downgrade of the US sovereign debt rating and therefore a (slight) rebound next month is not excluded.