Kansas City Federal Reserve Factory Index Improves

The Federal Reserve Bank of Kansas City reported that its index of regional manufacturing sector business activity rebounded to 16 in January following two months of decline. Despite the increase, the figure remained near its recent low, but a strong upward trend remained in place. The ISM-Adjusted index similarly improved last month to a level of 57.3 (NSA), continuing its rising trend as well. During the last ten years, there has been a 56% correlation between this index and the q/q change in real GDP.

Movement amongst the index components was positive including new orders, shipments and a sharply higher inventory measure. The supplier delivery index strengthened and was near its recent high, suggesting slower delivery speeds. Export orders also rose and nearly equaled their 2017 high. Production held steady m/m, up sharply from its 2015 low.

Employment gained modestly and remained in its recent up-trend. Twenty-nine percent of respondents reported increased hiring while 14% reported a decline in job levels. The employee workweek measure fell sharply to its lowest level in nine months.

The index of finished goods prices surged to the highest level since April 2011. The raw materials prices index similarly strengthened, up sharply from its 2015 low.

The overall expectations index posted a moderate increase. It has trended sideways at an elevated level since early last year. Expected orders, shipments and production each rose slightly but remained below the highs reached earlier in the year. Expected employment eased, but the expected workweek strengthened. Expected capital spending surged to a record high.

Expected finished goods prices also surged to the highest level since August 2008. Expected raw material prices improved moderately, but remained up sharply versus the 2015 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 and northern New Mexico. Data for the Kansas City Fed Survey can be found in Haver's SURVEYS database.