Kansas City Federal Reserve Factory Index Strengthens

The Federal Reserve Bank of Kansas City reported that its index of regional manufacturing sector business activity jumped to 23 in October following an unrevised uptick to 17 during September. The figure was at the highest level since March 2011. The ISM-Adjusted index strengthened to 62.2 (NSA), also its highest level since March 2011. 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. Inventory measures surged. Export orders along with domestic new & unfilled orders also rose last month. Shipments held steady, while supplier delivery times backed away from a ten-year high, signifying sharply slower product delivery speeds.

Employment jumped to the highest level since March 2011. Thirty-four percent of respondents reported increased hiring while 11% reported a decline in job levels. The employee workweek measure also strengthened.

The index of finished goods prices held steady after last month's sharp increase. It remained up significantly since the January 2015 low. The raw materials prices index improved m/m, and also significantly improved versus the 2015 low.

The overall expectations index increased sharply to the highest level since March. Expected new orders, shipments, employment, the employee workweek, exports and production each strengthened. Capital spending improved modestly.

Expectations for finished goods prices ticked higher m/m and remained up sharply since the September 2015 low. Expected raw material prices also gained moderately and remained up compared to 2015.

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.