Kansas City Fed Manufacturing: Flat Activity in May

The latest Kansas City Fed Manufacturing Survey composite index increased in May as did future expectations. The composite index came in at -2, up from -8 in April, while the future outlook rose to 6.

Here is an excerpt from the latest report:

Factory Activity Was Essentially Unchanged

Tenth District manufacturing activity was essentially unchanged in May, and expectations for future activity grew modestly. Price growth increased on a month-over-month basis but cooled on a year-over-year basis, and raw materials prices continue to grow at a faster pace than finished product prices (Chart 1, Tables 1 & 2).

The month-over-month composite index was -2 in May, up from -8 in April and -7 in March (Tables 1 & 2). The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. The pace of decline slowed in paper, chemical, and fabricated metal manufacturing while activity expanded in printing, nonmetallic mineral, and furniture manufacturing. The month-over-month indexes were mixed, but most improved from last month. Production was flat and employment grew, while employee workweek, materials inventories, and supplier delivery time declined slightly. The volume of new orders fell at moderate pace, with a reading of -13. The year-over-year composite index for factory activity picked up to -6 from -12, driven mostly by rebounds in inventories and employment. Capital expenditures stayed steady after declining for three consecutive months. The future composite index increased from 2 to 6 in May, as firms anticipate significant increases in production and employment in future months.

Background on Kansas City Fed Manufacturing Survey

The Kansas City Fed Manufacturing Survey is a monthly survey of ~300 manufacturing plants that provides information on current manufacturing activity and future expectations in the tenth district (Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico, and western Missouri). The composite manufacturing index is an average of indexes on production, new orders, employment, delivery time, and raw materials inventory. This is a diffusion index, meaning negative readings indicate contraction while positive ones indicate expansion. The survey offers clues on inflationary pressures and the pace of growth in the manufacturing sector for this region of the country and the accumulated results can help trace long-term trends.