Kansas City Federal Reserve Factory Sector Index Remains Soft

The Federal Reserve Bank of Kansas City indicated that its index of regional manufacturing sector business activity eased to four in May from five in April. These figures were below the high of 26 reached last May.

The ISM-Adjusted index slipped to 52.8 (NSA) this month from April's 53.5 and remained lower than the high of 64.2 reached in May 2018. Since 2008, there has been a 56% correlation between this index and the q/q change in real GDP.

The new orders, shipments and production measures deteriorated m/m and were down significantly from the highs of early last year. The supplier delivery series rose slightly, but order backlogs held steady at a lower level. The export order index eased after rising to the highest point since May of last year.

The employment reading improved m/m but remained sharply below the high reached in July. A slightly higher 21% (NSA) of respondents reported increased hiring while a steady 17% reported a decline in job levels. The employee workweek index declined sharply to the lowest level in three months.

The index of finished goods prices improved moderately m/m but remained well below the highs reached early last year. An increased 23% of respondents paid higher prices, while a slightly higher eight percent paid less. The raw materials prices index declined to the lowest level since October 2016, off sharply versus the March 2018 high.

The overall expectations index was little changed at 12, the lowest level since September 2016. It remained down sharply from its February 2018 high of 36. Expected new orders held steady, but shipments and employment improved. Expected production rose slightly from a nearly three-year low. The expected capital expenditure figure remained well below its high early last year.

The expected finished goods price index improved slightly m/m but has been moving sideways for six months, well below the highs twelve months earlier. The expected raw materials price figure has shown similar movement.

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.