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Economy in Brief

Kansas City Fed Manufacturing Index Declines Further in June But Remains Positive
by Winnie Tapasanun  June 23, 2022

• June decline led by new orders, shipments, production, and employment.

• Current and expected conditions fall for the third consecutive month.

• Inflation pressures persist w/ inflation indicators at very high levels.

The Federal Reserve Bank of Kansas City reported that its manufacturing sector business activity index fell to 12 in June from 23 in May and 25 in April. The June reading was the lowest since December 2020 and down from 28 in June 2021, indicating factory activity growth slowed further to a still-positive level this month. The ISM-adjusted index calculated by Haver Analytics declined to 56.3 (NSA) in June from 61.7 in May, also the lowest reading since December 2020 and down from 64.2 in June 2021.

The production measure fell to -1 in June, its first negative reading since May 2020, down from 19 in May and significantly lower than 31 in June 2021. The shipments index dropped further to -3 in June, the lowest level since May 2020, from 17 in May, 27 in April and a record-high 46 in March. The new orders measure fell to -8 this month, the lowest reading since May 2020, from 15 in May. Twenty-two percent of respondents reported orders gains while 30% reported declines. The employment index fell back to a three-month-low 18 in June from a record-high 34 in May. Thirty-four percent of respondents reported increases in the number of employees while 10% reported decreases.

The supplier delivery times index was at 25 in June, down from 29 in May and 39 last June. Order backlog readings dropped to -4 this month from 20 in May, registering the lowest reading since July 2020 and down from 31 last June.

Inflation pressures persisted in June with firms continuing to report negative impacts from higher inflation and supply chain disruptions/shortages. The prices received index for finished products was at 51 in June, up from 42 in May, near a record-tying 57 in April (also 57 in August 2021) and up from 45 last June. Fifty-five percent of respondents reported higher prices received while only 4% reported price declines. The raw materials index dipped to a still very high level of 71 in June from 72 in May, modestly down from 82 last June and a record-high 88 last May.

The expectations index for six months ahead fell to 10 in June, the lowest level since June 2020, from 31 in May. The expectations indexes for new orders, shipments, production, and employment declined further but remained in a positive territory. Expected pricing power edged down to a still-elevated level of 67 in June from 68 in May.

The latest survey was conducted for a six-day period from June 15-21, 2022 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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