Kansas City Fed's Factory Sector Index Remains Elevated in May

• Growth backs off slightly from record level.

• Component movement weakens m/m.

• Expectations for six months ahead ease again.

The Federal Reserve Bank of Kansas City reported that its manufacturing sector business activity index fell to 26 during May from the record 31 recorded in April. The headline figure compares to -19 one year earlier. The series dates back to July 2001.

The ISM-Adjusted Index (NSA) eased to 64.5 in May from the record 66.7 in April. The figure remains well above the level of 50 which separates expansion from contraction.

Most individual series backpedaled this month. The shipments index reversed most of April's gain which was to the highest level since June 2018. The order backlog measure fell from the record to the lowest level in four months. The employment series also moved away from the all-time high in April. The production series fell back but remained near its record. The supplier delivery time index dropped, indicating the quickest product delivery speeds since January. Moving upward was the new orders index to 35, nearly a record level.

On the inflation front, the prices received index for finished products strengthened to a record 51 in May. It compared to the deflationary readings registered early last year. The raw materials index also surged to a new record of 86. It remained up from -16 in April of 2020.

The expectations-in-six months composite reading eased to 33 in May from 34 in April, but remained up sharply from -19 in March of last year. Expected new orders and shipments increased but expected employment edged lower after its April surge.

The expectations index for prices received surged m/m to 60 and matched the record level. Expectations for raw materials prices eased in May but remained near its all-time high.

The figures date back to July 2001. The composite index is an average of the production, new orders, employment, supplier delivery time and raw materials inventory indexes. The diffusion indexes are calculated as the percentage of total respondents reporting increases minus the percentage reporting declines. The survey covered plants in Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico and western Missouri. Data for the Kansas City Fed Survey can be found in Haver's SURVEYS database.