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Economy in Brief

Kansas City Fed Factory Index Eases in September
by Tom Moeller  September 24, 2020

• Expectations also weakened slightly.

• Pricing power improved.

The Federal Reserve Bank of Kansas City reported that their manufacturing sector business activity index fell to 11 in September after increasing to 14 in August. These figures remained up, however, from the low of -30 in April.

The Kansas City measure is a diffusion index with positive readings indicating more respondents reporting increases than decreases in business activity. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes.

The ISM-Adjusted Index (NSA) was little changed at 54.9 after rising to 55.0 in August. It remained up from a low of 37.6 in April.

A decline in the current conditions measure was broad-based with new orders, shipments, employment and production backpedaling. These measures remained up sharply, however, from their recession lows. The supplier delivery speed measure rose, in contrast, indicating slower delivery speeds.

On the inflation front, the prices received index for finished products surged to 12, the highest level since May 2019. The raw materials index also jumped to 24, the highest level since January.

The future composite index (expectations in six months) eased to 18 from 19 in August. Nevertheless, it remained up sharply from September of 2019. Expected employment declined, but most of the other expectations series improved, including production, shipments and new orders.

Expectations of pricing pressures intensified. The finished product price measure rose to 34, its highest level since May 2019, and the raw materials price measure increased to 33, up from -8 six months earlier.

The diffusion indexes are calculated as the percentage of total respondents reporting increases minus the percentage reporting declines. The September survey was conducted during the third week of the month and included 95 responses from plants in Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico and western Missouri. Data for the Kansas City Fed Survey can be found in Haver's SURVEYS database.

Kansas City Federal Reserve Manufacturing Survey (SA) Sep Aug Jul Sep'19 2019 2018 2017
Conditions Versus One Month Ago (% Balance)     11 14 3 -1 0 17 14
ISM-Adjusted Composite Index (NSA) 54.9 55.0 51.5 49.4 50.0 58.9 56.7
   New Orders Volume 23 26 9 -2 -3 17 17
   Number of  Employees 7 9 3 -10 -1 17 15
   Production 18 23 7 9 2 19 17
   Prices Received for Finished Product 12 4 6 2 7 22 7
Expected Conditions in Six Months 18 19 14 6 12 28 26
   New Orders Volume 23 21 20 13 17 35 35
   Number of Employees 19 26 11 14 15 33 39
   Production 25 20 25 7 19 40 40
   Prices Received for Finished Product 34 16 13 18 26 42 27
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