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Economy in Brief

Kansas City Federal Reserve Factory Index Deteriorates
by Tom Moeller  July 26, 2018

The Federal Reserve Bank of Kansas City reported that its index of regional manufacturing sector business activity declined to 23 in July, the lowest level since March. The index remained higher than its low of -12 in December 2015.

The ISM-Adjusted index also backpedaled to 60.7 (NSA) from 64.0 which was near the record high. During the last ten years, there has been a 57% correlation between this index and the q/q change in real GDP.

Movement amongst the index components was mostly negative this month. The new orders, shipments, production and order backlog readings declined, but supplier delivery times rose, indicating the slowest product delivery speeds since March. The export order reading held steady at 6, up from negative readings from 2012 through 2016.

The employment reading improved slightly and matched its record high. Thirty-five percent of respondents reported increased hiring while eight percent reported a decline in job levels. The employee workweek measure declined sharply after reaching a record high in June.

The index of finished goods prices increased and neared its 2008 high. Twenty-six percent of respondents paid higher prices, while three percent paid less. The raw materials prices index remained elevated.

The overall expectations index slipped as well, but remained near its record high. Expected orders and production fell while expected employment rose. Expected export orders were little changed m/m but were down sharply from a January high. The expected workweek also fell sharply.

Expected finished goods prices improved m/m but remained well below their April high. The reading was up sharply versus 2015. Expected raw materials prices rose m/m, but also remained strong 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.

Kansas City Federal Reserve Manufacturing Survey (SA) Jul Jun May Jul '17 2017 2016 2015
Conditions Versus One Month Ago (% Balance)     23 28 29 12 14 -2 -5
ISM-Adjusted Composite Index (NSA) 60.7 64.0 64.2 55.0 56.7 48.5 46.8
   New Orders Volume 21 27 38  13 17 -1 -7
   Number of  Employees 26 24 24 16 15 -6 -10
   Production 22 38 41 10 17 1 -5
   Prices Received for Finished Product 27 22 22 6 7 -7 -5
Expected Conditions in Six Months 34 36 26  21 26 9 4
   New Orders Volume 37 42 26 28 35 19 11
   Number of Employees 42 37 35 28 31 8 6
   Production 49 53 32 31 41 20 12
   Prices Received for Finished Product 43 40 44 13 27 7 9
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