US: Kansas City Fed Manufacturing Index

Thu Jun 28 10:00:00 CDT 2018

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Level 28 29

Great strength at a steady rate is the signal from Kansas City's manufacturing index which held nearly unchanged in June at 28. Readings are elevated but, unlike many other manufacturing reports, there are no indications of increasing capacity stress.

Shipments are very strong at 39 but are down 3 points in the month while the workweek inched only 1 point higher to 25 and employment held unchanged at 24. Supplier delivery times are extended but at 22 are down 1 point. Prices readings are not moving higher with inputs down 6 points to what is still a very hot 47 while selling prices are unchanged at 22.

Helping to limit immediate pressure on capacity is sharp slowing in backlog orders, at 10 vs 27 in May. New orders also slowed, to 27 for an 11 point decline, while export orders, likely not getting a boost from tariff actions, slipped 3 points but are still positive at 6. Strength without increasing stress is the welcome indication from today's report.

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.