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First Cut: Kansas City Fed Manufacturing Index slowed abruptly

The Kansas City Fed’s Manufacturing Index for December abruptly slowed to 3 from 15 in the prior month. The index is now well off the peak of 29 in May that has since shown a loss of momentum. It isn’t clear that there is one cause behind the moderation in expansion. Recently it appears that declining oil prices are playing a part. Survey respondents also repeated similar concerns to recent months for lack of skilled workers to hire and meet present demand, and the uncertainties associated with trade and tariffs and their negative impacts on the domestic and global economies. Businesses appear to be turning to automatic and capital expenditures to meet labor shortages and take advantage of changes in tax law.

The subindexes broadly still indicate expansionary conditions, but at a widely slower pace. Prices paid and prices received have also moderated in the face of lower oil prices.

The Kansas City index equivalent to the ISM Manufacturing Index is the third regional report to suggest that the national data will be lower for December. The computed index was down 4.4 points to 52.8 for December. It has a fairly good correlation to the ISM number (0.718), as do the New York and Philadelphia equivalent indexes (0.706 and 0.825, respectively). Taken together, this suggests that condition in the factory sector may well look less robust at the end of the year, although still growing.

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