The Richmond Fed’s composite manufacturing index for June 2025 fell to -20, a drop from -8 the month before. Meanwhile, the services index improved to +2 from -1 in the previous month, revised from an initial report of -4. Manufacturing shipments decreased sharply to -18, down from -5 last month (revised from -3). This decline stands in contrast to the Philadelphia Fed index, which recently showed an unexpected rise of 15.9, surpassing a forecast of -1.2.

Detailed Richmond Fed Figures

The Richmond Fed reports include several notable figures: new orders dropped to -25 from -12, and employment fell to -16 from -6. However, the local business conditions index improved to -11, a change from 17 last month. Vendor lead time and order backlogs have also decreased. Price trends show that prices paid decreased to 5.65% from 6.10% last month, although this is still above May’s 5.35%. Prices received also fell to 3.16% from 3.57%, but are still higher than May’s 2.73%. Over the next year, companies expect stable prices paid and an increase in prices received. Future outlooks suggest improvements in local business conditions, future shipments, and new orders. However, expectations for future employment have dropped to -10 from -4 last month. The drop in the composite manufacturing index to -20 signals a major economic contraction in the region. We are concerned about the decline in new orders and shipments, indicating weakening demand. This data creates uncertainty, especially as it contradicts the unexpectedly strong report from Philadelphia last week.

Inflation and Federal Reserve Impact

This conflicting regional data mirrors challenges in national statistics, with the S&P Global Manufacturing PMI and the ISM Manufacturing PMI indicating different trends. This divergence creates a complicated economic picture, making it tough to make broad market predictions. Such conditions may lead to increased volatility as traders grapple with inconsistent narratives. Despite the slowdown, inflation concerns in the report will worry the Federal Reserve. Prices paid and received eased slightly from last month’s increase but remain higher than in May. Expectations suggest firms anticipate needing to raise prices, indicating persistent inflation. Given the combination of slowing growth and ongoing inflation, we believe preparing for higher volatility is the smart approach. With the CBOE Volatility Index (VIX) around 13, significantly lower than the long-term average of 20, buying call options on the index offers a cost-effective way to guard against a market downturn. Additionally, we might consider buying puts on industrial or materials sector ETFs to hedge against specific weaknesses highlighted in this report. Ongoing price pressures could mean that market expectations for immediate interest rate cuts are too optimistic. This report complicates the central bank’s decisions, which may have to keep rates higher for longer to tackle inflation, even amid slowing growth. We will examine options on Treasury futures to prepare for the possibility that yields stay elevated. The internal expectations from the survey add to our cautious stance. Businesses expecting a drop in future employment while also predicting increases in future shipments and new orders seem to be at odds. This could be a sign that companies are either overly optimistic or anticipating significant productivity gains that may not happen. Create your live VT Markets account and start trading now.

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