Kansas City Fed Factory Sector Activity Improves; Raw Materials Pricing Power Evaporates

The Federal Reserve Bank of Kansas City reported that its Composite index of 10th District factory sector activity rose to 8 this month, the highest level in three months. It remained, however, near the middle of the recent range. The new orders component rose sharply to its highest level since July. The employment moved sideways at the highest level since May. The composite index is an average of the production, new orders, employment, supplier delivery time and raw materials inventory indexes. The prices paid index fell m/m to 0, the lowest level since May of last year. The index of prices paid for raw materials declined sharply to 5, the lowest point of the economic expansion.

Expectations held steady at the highest level since January, suggesting future improvement in business conditions. Expected prices paid for raw materials, however, slumped to the lowest point since the summer of 2009. Expected finished product prices continued in its recent sideways trend. New orders also continued in its sideways trend since the spring while the shipments figure matched its highest point since April. Employment rose to its highest level since 2006 but the employee workweek reversed most of its November rise. Capital expenditures recovered to the highest level since July.

The diffusion indexes are calculated as the percentage of total respondents reporting increases minus the percentage reporting declines. The survey included 94 responses from plants in Colorado, Kansas, Nebraska, Oklahoma, Wyoming northern New Mexico. Data for the Kansas City Fed Survey can be found in Haver's SURVEYS database.

Modeling Labor Markets in Macroeconomics: Search and Matching from the Federal Reserve Bank of Richmond is available here.