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Economy in Brief

FRB Kansas City Manufacturing Index Slips But Remains Elevated
by Sandy Batten  April 28, 2022

• April decline led by orders and shipments.

• Expected conditions also fell, for the first time in four months.

• Inflation indicators continued to rise.

The Federal Reserve Bank of Kansas City reported that its manufacturing sector business activity index unexpectedly fell to 25 in April from a record high 37 in March. The series dates back to July 2001. The headline index reflects the answer to a single question. Haver calculates a composite measure along the lines of the ISM index. This calculated not seasonally adjusted composite fell to 63.1 in April from a record 68.9 in March.

The new orders and shipments components were especially weak in April with the new orders index falling to 10 from 33 in March and the shipments index declining to 27 from 46 in March. The percentage of respondents reporting an increase in orders fell to 38% in April from 46% in March while 23% reported a decline versus only 9% in March. The production measure slumped to 28 in April from a series high of 46 in March. The employment measure edged up to 19 in April from 18 in March.

The supplier delivery times index eased in April to 42 from a record-tying 55 in March. However, even with the April decline, the index remains quite elevated from an historical perspective, indicating ongoing supply-chain disruptions. By contrast, order backlog readings fell markedly to 9 in April from 29 in March.

Inflation pressures continued to intensify in April. The prices received index for finished products increased to a record-tying 57 in April from 51 in March. In April 56% of respondents reported receiving higher prices, up from 51% in March, while only one percent reported price declines. The raw materials index rose to 83 in April following an outsized jump to 81 in March. The record high for this measure is 88 reached in May 2021.

The expectations reading for six months ahead fell to 34 in April, its first decline in four months, from 41 in March. The orders, production, shipments and employment expectations each fell. Expected pricing power slipped a tick to 74 after having surged to a record-high 75 in March.

Answers to special questions this month showed an increase in job openings since the beginning of the year with increased difficulty in filling them. Also, new COVID-induced lockdowns in China were seen as further elevating supply-chain disruptions with 70% reporting increased disruptions from the lockdowns and 57% reporting higher input prices.

The latest survey was conducted in the five-day period from April 20-25 and included 97 responses from plants in Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico and western Missouri.

The series dates back to July 2001. The diffusion indexes are calculated as the percentage of total respondents reporting increases minus the percentage reporting declines. Data for the Kansas City Fed Survey can be found in Haver's SURVEYS database.

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