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Economy in Brief

Kansas City Federal Reserve Factory Sector Improves; Expectations Weaken
by Tom Moeller  November 16, 2018

The Federal Reserve Bank of Kansas City reported that its index of regional manufacturing sector business activity increased to 15 in November from 8 in October. It remained down, however, from the May high of 29.

The ISM-Adjusted index improved to 58.9 (NSA) this month from 55.7, but remained lower than its April high of 64.2. During the last ten years, there has been a 61% correlation between this index and the q/q change in real GDP.

Most of the component series indicated m/m improvement. The new orders, production, supplier delivery times and the order backlog indexes each recovered following the prior month's weakness. The gains were to levels, however, that left them down significantly versus the highs of early in the year. The export orders series improved for the third straight month indicating moderate growth, as it has all year.

The employment reading eased slightly and remained sharply below the levels earlier in the year and during all of 2017. A greatly weakened 20 percent (NSA) of respondents reported increased hiring while a lessened 11 percent reported a decline in job levels. The employee workweek index stabilized after it tumbled in Q3.

The index of finished goods prices improved slightly after falling earlier to the lowest level since December. A higher twenty-nine percent of respondents paid higher prices, while an increased five percent paid less. The raw materials prices index rose slightly following earlier sharp declines.

The overall expectations index weakened to 16, the lowest level in two years and remained down sharply from its February high of 38. Expected employment improved m/m but remained weak. The expected shipments and new orders series fell sharply. Expected production fell to a two-year low, but expected export orders increased sharply. The expected capital expenditure figure remained well below its early-year highs.

The expected finished goods price index weakened significantly m/m and remained down versus the highs early in the year. The expected raw materials price figure remained weak.

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) Nov Oct Sep Nov '17 2017 2016 2015
Conditions Versus One Month Ago (% Balance)     15 8 13 15 14 -2 -5
ISM-Adjusted Composite Index (NSA) 58.9 55.7 55.4 58.1 56.7 48.5 46.8
   New Orders Volume 20 7 15 19 17 -1 -7
   Number of  Employees 6 8 1 16 15 -6 -10
   Production 24 5 10 15 17 1 -5
   Prices Received for Finished Product 23 19 24 11 7 -7 -5
Expected Conditions in Six Months 16 21 27 26 26 9 4
   New Orders Volume 25 41 35 32 35 19 11
   Number of Employees 20 15 29 30 31 8 6
   Production 27 37 38 42 41 20 12
   Prices Received for Finished Product 30 38 44 38 27 7 9
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