Kansas City Federal Reserve Factory Index Remains Negative

The Federal Reserve Bank of Kansas City reported that its index of regional manufacturing business activity of -2 in September, the third straight negative monthly reading. These negative figures suggest declining business activity overall and were below the high of 26 reached in May 2018.

The ISM-Adjusted index nevertheless improved to 49.4 (NSA) this month and recovered its August decline. It remained below the high of 64.2 reached in May 2018. Since 2008, there has been a 54% correlation between this index and the q/q change in real GDP.

The components of the factory survey were mixed m/m. The shipments, new orders and product delivery times readings improved somewhat, but inventories declined. The production measure rose to the highest level since May but order backlogs remained quite negative. The export orders measure was negative for the third month in the last four.

The employment reading deteriorated m/m and remained below zero for the third straight month, indicating a net decline in job levels. A lessened 12% (NSA) of respondents reported increased hiring while a steady 23% reported a decline in job levels. The employee workweek index rose sharply to a five-month high.

The index of finished goods prices rose above zero but remained well below the highs reached early last year. Seventeen percent of respondents paid higher prices versus 29% twelve months earlier. Fourteen percent paid less versus four percent one year ago. The raw materials prices index was below zero for a second straight month and was down sharply y/y.

The overall expectations index deteriorated to the lowest level since early 2016 and was well below the February 2018 high. Expected shipments, materials inventories and production deteriorated. Employment and new orders rose. The expected capital expenditure figure weakened and remained well below its high early last year. The expected export measure declined for the second month in the last three.

The expected finished goods price index deteriorated to the lowest level in two years and was well below the high reached in February 2018. The expected raw materials price figure declined  and remained well below the February 2018 high.

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.