The Federal Reserve Bank of Kansas City indicated that its index of regional manufacturing sector business activity slipped to -1 in July after falling to zero in June. It was the first negative reading since August 2016 and below the high of 26 reached last May.

The ISM-Adjusted index fell to 49.1 (NSA) this month from 51.5 in June and remained lower than the high of 64.2 reached in May 2018. Since 2008, there has been a 52% correlation between this index and the q/q change in real GDP.

Deterioration in the activity index components was broad-based, including new orders, order backlogs and production.  The export order index deteriorated from its April high. Moving the other way, the shipments and supplier delivery series rose slightly.

The employment reading deteriorated into negative territory for the first time since September 2016, and remained sharply below the high reached twelve months ago. A lessened 20% (NSA) of respondents reported increased hiring while a greatly increased 24% reported a decline in job levels. The employee workweek index fell below zero for the first time since November 2016.

The index of finished goods prices eased m/m and remained well below the highs reached early last year. A lessened 16% of respondents paid higher prices, while a sharply higher 16% paid less, the most since July 2016. The raw materials prices index rose slightly m/m but remained well below the March 2018 high.

The overall expectations index deteriorated to 9, the lowest level since June 2016. It remained down sharply from its February 2018 high of 36. Expected new orders, production & delivery times improved slightly, but shipments, employment, inventories and order backlogs fell. Each of these series remained down sharply versus earlier highs The expected capital expenditure figure remained well below its high early last year.

The expected finished goods price index declined sharply m/m to the lowest level in two years. It remained well below the highs reached in 2018. The expected raw materials price figure also remained well below the February 2018 high.

The diffusion indexes are calculated as the percentage of total respondents reporting increases minus the percentage reporting declines. The survey included 94 responses from plants in Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico. Data for the Kansas City Fed Survey can be found in Haver's SURVEYS database.