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Tenth District manufacturing activity declined in March, and producers' expectations moderated somewhat but remained slightly positive. Most price indexes continued to decrease, with several reaching their lowest level since 2009. In a special question about the West Coast port disruptions, 32 percent of firms said it had affected them negatively.
The month-over-month composite index was minus 4 in March, down from plus 1 in February and 3 in January . 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 declines in plastics, food, and chemical production and continued weakness in metals and machinery. Looking across District states, the largest decline was in Oklahoma, with moderate slowdowns in Kansas and Nebraska.
Other month-over-month indexes decreased from the previous month. The production and shipments indexes fell after rising last month, and the new orders and order backlog indexes dropped to their lowest levels in over two years. In contrast, the employment and new orders for exports indexes inched higher but remained negative. The finished goods inventory index eased from 3 to minus 2, and the raw materials inventory index also moved into negative territory.
Year-over-year factory indexes also decreased. The composite year-over-year index declined from 9 to minus 2, and the production, shipments, new orders, and employment indexes also moved into negative territory. The capital expenditures index eased from 9 to 3, and the order backlog index decreased further. Both inventory indexes moderated somewhat.
Most future factory indexes eased slightly but remained positive. The future composite index moved down from 11 to 4, and the future production, shipments, and new orders index also decreased moderately.
Market Consensus Before Announcement
The Kansas City Fed manufacturing index posted at 1 in February, down from 3 in January and 8 in December. 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.
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. The headline number is the composite index for current month activity. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes.
The Kansas City Fed composite manufacturing index (and components) is a special type of index called a "diffusion index." A diffusion index measures how diffuse its components are-or how closely (or not) the components move together. That is, for the Kansas City Fed composite manufacturing index, are responses up or down? Diffusion indexes have different baselines for breakeven for zero growth. Some diffusion indexes have zero for the breakeven point and others (such as ISM) have 50 as the breakeven point. "Breakeven" means that higher numbers mean positive growth and below numbers mean contraction. And the further above breakeven indicates a stronger growth rate than just above breakeven. The same applies to below breakeven. A larger negative (below breakeven) indicates greater negative growth. Essentially, changes in the diffusion index indicate changes in the rate of growth or contraction.
If all members of a group of people (sample population) are asked if something has changed and in which direction, they will answer in one of three ways: it has not changed, it has increased, or it has decreased. Essentially, respondents in the ISM survey are asked whether activity for each of the indicators compared to the previous month are "Better," "Same," or "Worse." If all members of a group of people (sample population) are asked if something has changed and in which direction, they will answer in one of three ways: it has not changed, it has increased, or it has decreased.
The indexes for the Kansas City Fed report, which can range from 100 to -100, reveal the general direction of the indicators by showing how the number of plants with improving conditions offset those with worsening conditions. Index values greater than zero generally suggest expansion, while values less than zero indicate contraction. The closer index values are to 100, the more widespread are increases among respondents. The closer index values are to -100, the more widespread are decreases.
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.