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Economy in Brief

Kansas City Federal Reserve Factory Index Advances
by Tom Moeller  February 23, 2018

The Federal Reserve Bank of Kansas City reported that its index of regional manufacturing sector business activity rose to 17 during February, the highest level since October. The index was up from -12 in December 2015.

The ISM-Adjusted index similarly improved in February to a level of 58.2 (NSA), up from 41.5 in December 2015. During the last ten years, there has been a 57% correlation between this index and the q/q change in real GDP.

Movement amongst the index components was mixed including a sharply higher shipments reading. New orders & production also strengthened. Finished goods inventories rose modestly. To the downside, export orders retraced two months of increase and order backlogs eased. The fall in the supplier delivery times index suggested modestly quicker delivery speeds, but they remained sharply slower than those in 2015.

Employment strengthened to the highest level since October 2004. Thirty-three percent of respondents reported increased hiring while 13% reported a decline in job levels. The employee workweek measure rebounded following a January decline, to the highest level since last March.

The index of finished goods prices surged to the highest level since August 2008. Twenty-eight percent of respondents paid higher prices, while three percent paid less. The raw materials prices index similarly strengthened to the highest point since May 2011.

The overall expectations index surged, reflecting a record level of confidence. (The series dates back to 1981.) Expected orders, shipments and production each strengthened, while expected capital expenditures remained near the series' record. Expected export orders eased m/m but remained near the seven-year high. Expected employment increased to the highest level since March of last year, and the expected workweek approximated the series' high.

Expected finished goods prices also jumped to the highest level since August 2008, and expected raw materials prices similarly surged.

The diffusion indexes are calculated as the percentage of total respondents reporting increases minus the percentage reporting declines. The survey included 94 responses from plants in Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico. Data for the Kansas City Fed Survey can be found in Haver's SURVEYS database.

Estimating and Projecting Potential Output Using CBO's Forecasting Growth Model from the Congressional Budget Office can be found here.

Kansas City Federal Reserve Manufacturing Survey (SA) Feb Jan Dec Feb '17 2017 2016 2015
Conditions Versus One Month Ago (% Balance) 17 16 13 14 14 -2 -5
ISM-Adjusted Composite Index (NSA) 58.2 57.3 54.3 56.3 56.7 48.5 46.8
   New Orders Volume 16 14 11 24 17 -2 -8
   Number of Employees 23 18 16 16 15 -6 -10
   Production 21 16 16 13 17 0 -5
   Prices Received for Finished Product 26 21 11 3 7 -7 -5
Expected Conditions in Six Months 38 29 23 30 26 9 4
   New Orders Volume 49 36 24 38 35 19 11
   Number of Employees 41 33 36 31 31 8 6
   Production 56 37 29 43 41 20 12
   Prices Received for Finished Product 53 44 31 24 27 7 9
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