• May decline led by shipments and production but employment up to a record high.

• Current and expected conditions fall for the second straight month.

• Inflation pressures continue.

The Federal Reserve Bank of Kansas City reported that its manufacturing sector business activity index declined to 23 in May from 25 in April and 37 in March. The May reading was the lowest since December 2021 and modestly down from 29 in May 2021, indicating factory activity growth slowed slightly to a still-strong level this month. The ISM-adjusted index calculated by Haver Analytics fell to 61.7 (NSA) in May, a four-month low, from 63.1 in April, down slightly from 64.5 in May 2021.

The shipments index dropped to 17 in May from 27 in April and a record-high 46 in March, registering the lowest level since January. The production measure fell to 19, the lowest level since December, from 28. In contrast, the employment index rose to a record-high 34 from 19. An improved 40% of respondents reported increases in the number of employees while only 8% reported decreases. The new orders measure rebounded to 15 from 10. An increased 40% of respondents reported orders gains while a steady 23% reported declines.

The supplier delivery times index dropped to 29 in May from 42 in April, but it was up slightly from 27 in May 2021. Order backlog readings rebounded to 20 this month from 9 in April; however, it was down from 31 last year.

Inflation pressures persisted in May with firms continuing to report negative impacts from higher inflation and supply shortages. The prices received index for finished products fell to 42 in May, the lowest reading since September, from a record-tying 57 in April (also 57 in August). Forty-eight percent of respondents reported higher prices received while only 4% reported price declines. The raw materials index fell to a still very high level of 72 in May after rising to 83 in April, down from the record high of 88 reached in May 2021.

The expectations index for six months ahead fell to 31 in May, the lowest reading since December, from 34 in April. The expectations indexes for new orders, shipments, production, and employment fell. Expected pricing power declined to a still-elevated level of 68 in May from 74 in April.

The latest survey was conducted for a five-day period from May 18-23, 2022 and included 91 responses from plants in Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico, and western Missouri.

The series dates back to July 2001. The diffusion indexes are calculated as the percentage of total respondents reporting increases minus the percentage reporting declines. Data for the Kansas City Fed Survey can be found in Haver's SURVEYS database.