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Economy in Brief

Kansas City Fed Manufacturing Index Falls to Single Digit in August
by Winnie Tapasanun  August 25, 2022

• August index drops 10 pts. to 3, lowest since July '20, w/ shipments, production, and new orders in negative territory.

• Employment at its lowest level since December '20, albeit at a positive level.

• Inflation pressures ease w/ price indexes at their lowest levels in over a year.

• Expectations for future activity, while down, remain at a positive level.

The Federal Reserve Bank of Kansas City reported that its manufacturing sector business activity index fell to 3 in August from 13 in July and 12 in June. The August reading was well below the recent high of 37 in March and 25 last August, indicating Tenth District manufacturing activity growth decelerated considerably this month to the lowest level since July 2020. The ISM-adjusted index calculated by Haver Analytics fell to 51.7 (NSA) in August, also the lowest level since July 2020, from 57.7 in July and 63.0 last August.

The shipments index decreased 22 pts. to -13 in August from 9 in July; it also plunged from a record-high 46 in March and 19 last August. The production measure dropped 16 pts. to -9 in August after rising to 7 in July; it was down from 18 last August. The August results for shipments and production were their second negative readings in three months and their lowest since May 2020. The new orders index fell 14 pts. to -16 in August from -2 in July, registering the third straight negative reading to the lowest level since May 2020 and down from 24 last August. Twenty-four percent of respondents reported orders gains while 38% reported declines. The employment index fell to 10 in August, the lowest level since December 2020, down from 17 in July and 24 last August. Thirty percent of respondents reported increases in the number of employees while 18% reported decreases.

The supplier delivery times index was at 22 in August, down from 23 in July and 42 last August. Order backlog readings slid to -7 this month, the lowest level since July 2020, down from 5 in July and 26 last August.

Inflation pressures eased in August compared to July and last August. The prices received index for finished products dropped to 25 this month, the lowest reading since January 2021, from 36 in July and 57 last August. Thirty-six percent of respondents reported higher prices received while 9% reported price declines. The raw materials index fell to 38 in August, the lowest reading since November 2020, from 41 in July. It was well below 80 last August and a record-high 88 last May.

Expectations for future activity eased in August after improving in July, albeit at a positive level. The expectations index for six months ahead was at 10 in August, down from 26 in July and back to the same level as in June. The expectations indexes for employment, new orders, production, and shipments fell back in August but remained in positive territory. Expected capital expenditures rose to 29 in August, the second consecutive monthly rise to the highest level since April. Expectations for future raw materials prices fell further in August, while expected finished goods prices increased slightly, to 51 from July's 45.

The latest survey was conducted for a five-day period from August 17-22, 2022 and included 91 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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