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First Cut: Kansas City Fed Manufacturing Index barely positive in February

The Kansas City Fed’s Manufacturing Index was barely positive in February with a reading of 1 after 5 in January, and was its lowest since 0 (zero) in November 2016. Survey respondents reported a variety of challenges to business, but tariffs continued to dominate the comments, as did a lack of workers at all skill levels. The six-month outlook also was lower at 13 in February from 18 in January, and its lowest since 13 in November 2016. It is hard to escape the comparison that whatever improvement in conditions followed on the election of Mr. Trump in 2016 — and there was a swift and sharp upswing in consumer and business confidence — there has been a reversion to the fundamentally moderate pace of expansion present before then. Business is by no means bad, but not at the stellar levels seen in the past year or two.

The index for new orders plunged to -10 in February following a sluggish reading of 1 in January and was the first negative since -3 in August 2016. Production contracted slightly at -4 in February after 2 in January which followed on a -13 in December. Interestingly, the index for employment has not changed all that much in recent months. The 10 in February was up from the 7 in January and has been more-or-less on trend for the past six months. Survey respondents widely report they cannot find enough employees at all skills levels, and that many have to raise wages to attract and retain workers what workers they can find. There was a hint that some are turning to automation in the face of a lack of quality, committed applicants for the jobs on offer.

Part of the slower orders may be attributable to export orders. The index has been negative for three straight months at -2 in February, -10 in January, and -6 in December.

Both the indexes for prices paid and prices received eased in February, probably reflecting lower energy costs for inputs and ability to pass on higher costs, respectively.

The Kansas City-ISM equivalent index fell to 51.0 in February from 53.6 in January. Three of the five equivalent indexes point to a lower ISM Manufacturing Index reading. On net, I look for a small decline in the ISM number from the 56.6 in January.


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