Kansas City Fed's Manufacturing Index Cools; Future Activity Seen Down Sharply

Prices paid index at or near highs.

Manufacturing activity in the Midwest grew again in June, but at a slower pace than the rapid growth seen in May, while expectations for future factory activity were down sharply, according to the latest survey from the Kansas City Federal Reserve.

The price indexes in the survey all increased and were at or near all-time highs.

The Kansas City Fed’s production index in June was 23, down from 34 in May but up from 17 in April. The slowdown was broad-based, as production decelerated at both durable- and nondurable-goods producing plants. The year-over-year production index decreased slightly, falling from 54 to 47, but remained high by historical standards.

The future production index fell more sharply, dropping from 36 to 23, the lowest reading in 2006, the bank said. Although sample sizes make it difficult to draw firm conclusions about individual states, the data available suggest that production remained well above year-ago levels in all district states.

Other month-over-month indexes of factory activity were mixed compared with June but generally solid overall. The shipments index fell somewhat after posting its highest reading in two years, dropping from 30 to 20. In addition, the new orders index also declined from an all-time high in May, falling from 31 to 22.
The employment index increased this month, recording its highest reading in nearly two years, and the backlog index also edged higher. Indexes for supplier delivery time and inventories were also higher than in May.

Plant managers’ expectations for future factory activity decreased substantially, with most indexes falling or remaining unchanged compared with May. The future new orders index was down from 41 to 10 and the future shipments index also fell dramatically, with both recording their lowest readings in over four years. In addition, indexes for future order backlogs and average employee workweek were also down considerably from May. Future supplier delivery time increased substantially from 0 to 20, an all-time high.

The price indexes in the survey all increased in June, with each index either at or near its all-time high. The month-over-month finished goods price index rose from 15 to 25 and, while the raw materials index rose only slightly, both indexes posted their highest readings in approximately two years. The year-over-year price indexes also both rose slightly. The future raw materials price index recorded an all-time high, increasing from 65 to 71, while the future finished goods price index edged up from 34 to 37.
The Kansas City Fed district includes Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico and western Missouri.

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