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Economy in Brief

Kansas City Fed Manufacturing Index Indicates Sluggish Factory Activity in September
by Winnie Tapasanun  September 22, 2022

• Index drops to 1 in Sept., lowest since July '20, from 3 in Aug., w/ new orders in negative territory, shipments at 0, and production at 2.

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

• Inflation and rising interest rates are major concerns; prices indexes rebound.

• 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 1 in September from 3 in August and 13 in July. The September reading was well below a record-high 37 in March and 21 last September, indicating Tenth District manufacturing activity growth continued to decelerate this month to the lowest level since July 2020. "The slower pace in factory growth in September was driven by decreased activity at durable goods plants, especially electrical, furniture, nonmetallic mineral, primary metal, fabricated metal, and transportation equipment manufacturing," the Kansas City Fed reported. The ISM-adjusted index calculated by Haver Analytics fell to 50.7 (NSA) in September, the lowest level since May 2020, from 51.7 in August and 61.0 last September.

The new orders index rebounded to -11 in September from -16 in August, registering the fourth consecutive negative reading and down from 4 last September. A steady 24% of respondents reported orders gains while 35% reported declines. The shipments index improved to zero this month after dropping to -13 in August; however, remaining down from a record-high 46 in March and 9 last September. The production index recovered to 2 in September from -9 in August, but down from 10 last September. The employment index was unchanged at 10 this month, the lowest level since December 2020 and down from 20 last September. Twenty-seven percent of respondents reported increases in the number of employees while a steady 18% reported decreases.

The supplier delivery times index slid to -2 in September, the sixth straight m/m slide, from 22 in August. It was well below 41 last September. The order backlog index was at -4 this month, slightly up from -7 in August but noticeably down from 23 last September.

"Inflation and increasing interest rates are somewhat of a worry. We are beginning to see evidence of a slowdown in our industry," comments in the latest survey showed. The prices received index for finished products rebounded to 27 in September from 25 in August, but down from 37 last September. An increased 39% of respondents reported higher prices received while a lessened 8% reported price declines. The raw materials index was at 41 this month, up from 38 in August and back to the same level as July. However, it was well below 78 last September and a record-high 88 last May.

Expectations for future activity continued to ease in September, albeit at a still-positive level. The expectations index for six months ahead dipped to 9 this month from 10 in August. The expectations indexes for employment, new orders, production, and shipments fell for the second successive month in September but remained in positive territory. Expected capital expenditures dropped to 11 this month, the lowest level since December 2020, from 29 in August. Expectations for future raw materials prices rebounded in September following six consecutive m/m drops, while expected finished goods prices held steady at 51.

The latest survey was conducted for a five-day period from September 14-19, 2022 and included 101 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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