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First Cut: Kansas City Fed Manufacturing Index signals slower expansion in April

The Kansas City Fed’s composite manufacturing index dipped to 5 in April from 10 in March, signalling slower expansion. The six-month composite index fell to 11 in April from 22 in the prior month. Although the Kansas City Fed described the outlook as “mostly solid”, conditions have to be downgraded from moderate to modest in tone. Conditions are not bad, but month-to-month is seeing more uneven activity.

On the upside, new orders turn higher (10 in April after 4 in March), although backlogs are dwindling and offer less support if there is a lean month or two to get through (-5 after 9). Shipments were slightly slower (9 after 14) and deliveries taking less time (6 after 8). Inventories dipped below neutral (-4 after 9) as orders caught up.

Employment was sharply lower (2 in April after 14 in March) and nearest to neutral since 1 in November 2016. Some of this may simply be there are few workers to fill openings. Comments from respondents suggest that they are losing employees to outside work now that spring has arrived and the supply of skilled applicants is meager. The workweek continued to expand at the same pace in April from March (14).

The index for prices paid flattened out at 15 in April, unchanged from March. On the other hand, prices received showed businesses continue to have some pricing power (10 in April after 7 in March).

The Kansas City-ISM equivalent index fell to 52.9 in April from 54.3 in March, mainly on the contraction in inventories and fall off in employment. The correlation with the ISM Manufacturing Index is not the strongest among the District Bank surveys, especially compared to Richmond and Philadelphia. However, this does align with the size and direction of the ISM equivalents for those two District surveys. It is possible that the ISM index will see some decline from the 55.3 in March when the April data is released at 10:00 ET on Wednesday, May 1.

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