US: Kansas City Fed Manufacturing Index

Thu Apr 26 10:00:00 CDT 2018

Actual Previous
Level 26 17

Business is very brisk in the Kansas City Fed's manufacturing sample, posting an April index of 26. New orders have absolutely surged this month, to 37 from March's minus 1 with the business coming from domestic customers, not foreign ones as export orders came in barely over zero at only plus 1. Domestic or not, backlog orders are especially strong, up 15 points from last month to 29.

Tariff effects, if any, are scant though raw material inventories are up 6 points to 17 and could reflect the stockpiling of metals. Evidence of capacity stress, despite strength in shipments which rose 25 points to 37, is limited with delivery times still slowing but less so than the prior month, and with input costs and selling prices both very elevated. Not elevated, however, is the workweek and new workers are still available as the employment index is steady at a robust 26.

Six-month outlooks in various regional reports have been moving lower following the imposition of metal tariffs though the drift downward in this report has been limited, to 31 this month from 33 in March and 38 in February. Manufacturing data are showing uneven spots, such as this morning's durable goods report, but overall indications, like this report, are increasingly pointing to a factory sector that is gaining momentum.

The Kansas City Fed index offers a monthly assessment of change in the region's manufacturing sector. Positive readings indicate monthly growth and negative readings monthly contraction. Readings at zero indicate no change. The headline number is the composite index, an average of the production, new orders, employment, delivery time, and raw materials inventory indexes.

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 pressuresâ€including 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.