US: Kansas City Fed Manufacturing Index

Thu Feb 26 10:00:00 CST 2015

Consensus Consensus Range Actual Previous
Level 3 3 to 5 1 3

Tenth District manufacturing activity expanded just slightly in February, but producers expected activity to pick up moderately in the months ahead. Most price indexes continued to decrease, with several reaching their lowest level since 2009.

The month-over-month composite index was 1 in February, down from 3 in January and 8 in December. Market expectations were for a reading of 3. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes.

The overall slower growth was mostly attributable to large declines in primary metals and computer and electronics production. Looking across District states, the weakest activity was in Colorado, Oklahoma, and New Mexico.

In contrast, production activity in the fabricated metals and machinery industries both increased moderately. Other month-over-month indexes were mixed. The production and shipments indexes both moved back into positive territory. In contrast, the new orders index continued to decline, and the employment index decreased from 0 to minus 4. The finished goods inventory index eased from 8 to 3, and the raw materials inventory index also fell.

Year-over-year factory indexes were also somewhat mixed. The composite year-over-year index remained unchanged at 9, while the production, shipments, and order backlog indexes were higher than last month. The capital expenditures index edged up from 7 to 9, while both inventory indexes were basically unchanged. On the other hand, the new orders index inched lower from 5 to 3, and the employment index fell for the second straight month.

Future factory indexes eased slightly but remained at mostly solid levels. The future composite index moved down from 19 to 11, and the future production, shipments, and new orders index also decreased moderately. The future employment index dropped from 24 to 14, its lowest level in 5 months, and the future capital expenditures index edged down. The future finished goods inventory index fell from 18 to 7, and the future raw materials inventory index also decreased slightly.

Most price indexes continued to decrease in February. The month-over-month finished goods price index remained unchanged at minus 3, and the raw materials price index dropped from 8 to minus 6, its lowest level since May 2009. The year-over-year raw materials price index fell from 39 to 29, and the finished goods price index eased slightly. The future raw materials price index moderated from 31 to 25, and the future finished goods price index plummeted from 27 to 6, a five-year low.

Overall, the Kansas City index is consistent with readings on manufacturing, pointing to currently sluggish activity and declining prices. However survey participants expect both activity and prices to rise in coming months.

Market Consensus Before Announcement
The Kansas City Fed manufacturing index expanded at a slower pace in January, but producers' expectations for future activity remained at solid levels. Most price indexes were lower than last month, especially for finished goods prices. The month-over-month composite index was 3 in January, down from 8 in December and 6 in November. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. Most other month-over-month indexes were also down compared to last month. The production, shipments, and new orders indexes moved into negative territory for the first time in over a year, and the employment index posted a five-month low. The order backlog index plunged from 5 to -20, and the new orders for exports index decreased from 0 to -7. The finished goods inventory index continued to rise somewhat, and the raw materials inventory index moved up from 7 to 12.

The monthly Survey of Manufacturers provides information on current manufacturing activity in the Tenth District. The accumulated results also help trace longer term trends. The survey monitors manufacturing plants selected according to geographic distribution, industry mix, and size. Survey results reveal changes in several indicators of manufacturing activity, including production and shipments, and identify changes in prices of raw materials and finished products. Answers cover changes over the previous month, changes over the past twelve months, and expectations for activity six months into the future. The breakeven point for each index is zero with positive numbers indicating growth and negative numbers reflecting decline. (Federal Reserve Bank of Kansas City)

Investors track economic data like the Kansas City Survey of Manufacturers to understand the economic backdrop for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers a moderate growth environment that will not generate inflationary pressures. The survey gives a detailed look at Tenth District's manufacturing sector, how busy it is and where it is headed. Some of the survey indexes also provide insight on inflation pressuresincluding prices paid, prices received, wages & benefits, and capacity utilization. The equity market is also sensitive to this report because it is an early clue on the nation's manufacturing sector, reported in advance of the ISM manufacturing index and often in advance of the NAPM-Chicago index.