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Economy in Brief

Kansas City Fed's Factory Index Recovers in October
by Tom Moeller  October 22, 2020

• Expectations resume upward trend.

• Pricing power deteriorated.

The Federal Reserve Bank of Kansas City reported that its manufacturing sector business activity index rose to 13 in October after falling to 11 in September from 14 in August. These figures remained up from the low of -30 in April.

The ISM-Adjusted Index (NSA) rose to 56.2 after falling to 54.9 in September. It remained up from the low of 37.6 in April.

Increases in the current conditions measures were broad-based. New orders, shipments, employment and production each recovered after declining in September. The supplier delivery speed measure fell sharply, however, indicating the quickest delivery speeds in three months. The raw materials inventory index rose to 1 from -6 in September and from -5 in October of last year.

On the inflation front, the prices received index for finished products reversed its September improvement with a decline to 4, though that remained up from deflationary readings during earlier this year. The raw materials index surged, however, to the highest level since November 2018.

The expectations-in-six months composite reading increased to 21 from 18 in September. It remained up sharply from -19 in March. Expected new orders, employment and production improved. The expected backlog of new orders slipped m/m but is up sharply from negative reading early this year and late in 2019.

Expectations of pricing pressures weakened. The finished product price measure fell m/m to 26, but remained up from 18 twelve months ago. The expected raw materials price measure surged to 55, up from 4 six months earlier and 25 twelve months ago.

The composite index is an average of the production, new orders, employment, supplier delivery time and raw materials inventory indexes. The diffusion indexes are calculated as the percentage of total respondents reporting increases minus the percentage reporting declines. The October 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) Oct Sep Aug Oct'19 2019 2018 2017
Conditions Versus One Month Ago (% Balance)     13 11 14 -2 0 17 14
ISM-Adjusted Composite Index (NSA) 56.2 54.9 55.0 48.5 50.0 58.9 56.7
   New Orders Volume 26 23 26 -9 -3 17 17
   Number of  Employees 9 7 9 -5 -1 17 15
   Production 23 18 23 7 2 19 17
   Prices Received for Finished Product 4 12 4 4 7 22 7
Expected Conditions in Six Months 21 18 19 4 12 28 26
   New Orders Volume 24 23 21 11 17 35 35
   Number of Employees 22 19 26 6 15 33 39
   Production 31 25 20 5 19 40 40
   Prices Received for Finished Product 26 34 16 18 26 42 27
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