Kansas City Fed's Factory Sector Index Demonstrates Mixed Performance

The Federal Reserve Bank of Kansas City reported that business activity improved during July. The Composite index of 10th District factory sector activity rose to -7, up from May's low of -13. The Fed indicated that higher shipments led the improvement as the index rebounded to -2, its highest level since March. Slower product delivery speeds added to the overall index improvement. Offsetting these gains, however, was the employment reading which deteriorated to the lowest level since April 2009. The new orders reading also backpedaled following a sharp June improvement. The composite index is an average of the production, new orders, employment, supplier delivery time and materials inventory indexes. Pricing power continued to improve. The prices received index increased m/m to 2, the highest level since November. The index of prices paid for raw materials backpedaled m/m to 2 but was still higher than the March low of -12.

The expectations reading held steady at the lowest level since July 2009. Expected new orders gained significantly but shipments continued down to the 2009 low. The expected employment reading stabilized following sharp declines from December's high. The employee workweek reading eased following its May recovery from the 2009 low. Expected production also returned to recession territory. Expected pricing power for finished products held steady m/m at nearly the best level since January. It remained down sharply, however, from the highs of the economic recovery. Expected raw materials prices also slipped m/m but remained up from the recovery's low.

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.