The Kansas City Fed Manufacturing Index was little changed at 4 in May after 5 in April, reflecting overall stable conditions for the regional factory sector. Survey respondents’ comments indicated that ongoing labor shortages are still very much with them, as well as negative impacts from a new round of tariffs and to some extent from adverse weather conditions related to flooding. The six-month expectation index was also little changed at 12 in May from 11 in April. The April-May period reflects the same sort of conditions present since the slowdown in activity in late 2018. Expansion continues, if at a more measured pace and with more volatility in month-to-month conditions for the subindexes.
May saw a waning in the pace of new orders (4 in May after 10 in April) and order backlogs were unchanged (-5 in May and April) and offering little support if activity slows down. Shipments were negative (-2 after 9) for the first time since February, and is only the second contractionary reading since -1 in May 2017. Inventories were at neutral (0 in May after -4 in April) and part of a trend in the past five months of adjustments in response to slower growth.
Employment continued to expand (5 in May after 2 in April) although some survey respondents indicated that they were seeking alternatives to hiring, and others that they were having to offer better wages to attract entry level workers. The workweek registered only a small increase (2 after 14) that perhaps was in response to slower conditions.
Prices paid were not much changed if a bit slower (13 in May after 15 in April and March) and are not driven as much by energy costs of late. Prices received were higher (15 in May after 10 in April) as business’ pricing power was a little improved, although below that of most of 2018.
The Kansas City-ISM equivalent index was down almost a full point to 52.4 in May from 53.2 and indicates some slowing may be expected in the ISM Manufacturing Index when it is reported at 10:00 ET on Monday, June 3. The Kansas City measure doesn’t have the strongest correlation to the ISM number, but it does suggest that the anemic 52.8 index in the April ISM report could remain in line with only modest expansion, at best.
Disclaimer: Whetstone Analysis provides commentary as a service to its subscribers. Whetstone Analysis is not responsible for, and expressly disclaims all liability for, damages of any kind arising out of use, reference to, or reliance on any information contained within the site. While the information contained within the site is periodically updated and every effort is made to ensure its accuracy, no guarantee is given that the information provided in this Web site is correct, complete, and up-to-date. Click here to read our full Disclaimer.