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Economy in Brief

Kansas City Fed Manufacturing Index Shows Moderate Factory Activity Growth in July
by Winnie Tapasanun  July 28, 2022

• July index rebounds 1 pt. to 13, led by shipments, production, and new orders; employment at its lowest level since Jan. '21, albeit at a positive level.

• Current and expected conditions rise for the first time since March.

• Inflation pressures and price expectations ease somewhat, to their lowest levels in over a year.

The Federal Reserve Bank of Kansas City reported that its manufacturing sector business activity index was at 13 in July, up from 12 in June but down from 23 in May. The July reading was below the recent high of 37 in March and 28 last July, indicating Tenth District manufacturing activity growth remained moderate at a positive level this month. The ISM-adjusted index calculated by Haver Analytics rebounded to 57.7 (NSA) in July, the first monthly rise since March, from 56.3 in June. It was down from 64.3 last July.

The shipments index recovered to 9 in July from a two-year-low minus 3 in June; nevertheless, falling from a record-high 46 in March and 29 last July. The production measure rose to 7 in July after dropping to -1 in June, but it was significantly lower than 35 last July. The new orders index posted the second consecutive negative reading this month, improving to -2 after falling to -8 in June (lowest since May 2020). Twenty-seven percent of respondents reported orders gains while 27% also reported declines. The employment index slipped to 17 in July, the lowest level since January 2021, down from 18 in June, a record-high 34 in May and 25 last July. Thirty-two percent of respondents reported increases in the number of employees while 12% reported decreases.

The supplier delivery times index was at 23 in July, down from 25 in June and 41 last July. Order backlog readings rebounded to 5 this month, up from -4 in June (lowest since July 2020) but down from a record-high 46 last July.

Inflation pressures eased somewhat in July compared to June and last July. The prices received index for finished products fell to 36 in July, the lowest reading since February 2021, from 51 in June and 49 last July. Forty-seven percent of respondents reported higher prices received while 10% reported price declines. The raw materials index dropped to 41 in July, the lowest reading since November 2020, from 71 in June. It was also below 80 last July and a record-high 88 last May.

Expectations for future activity improved in July after falling in June. The expectations index for six months ahead recovered to 26 in July from a two-year-low 10 in June. The expectations indexes for new orders, shipments, production, employment, and capital expenditures rebounded and remained in a positive territory following their June drops. Price expectations moderated, with expected pricing power declining to 45 in July, the lowest reading since February 2021, from 67 in June.

The latest survey was conducted for a five-day period from July 20-25, 2022 and included 93 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.

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