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First Cut: Kansas City Fed Manufacturing Index down in August, lowest since March 2016

The Kansas City Fed Manufacturing Index for August was down for a fifth month in a row at -6 from -1 in July and was the lowest since -7 in March 2016. Survey respondents’ comments point to two big problems: tariffs that make pricing and supply difficult, and a shortage of qualified labor. While the index for six months from now was more-or-less steady at 11 in August after 9 in July, it does not suggest that the region’s factory sector is anticipating any significant pick up in activity.

The survey details point to sharply weaker new orders (-16 in August after -2 in July, and the lowest since January 2016 at -26). Orders in the pipeline continued to weaken(-19 after -13), and shipments were declining (-7 after 0). Employment contracted for a second month in a row (-7 after -6) and probably led to an expansion of the workweek to make up the difference (7 after -4). Delivery times were shortening (-6 after 6) and inventories nudged higher (3 after 1).

Falling energy prices probably were the main factor behind the drop in prices paid (-2 in August after 15 in July) and the first negative since March 2016. Prices received reflected decreased pricing power (-3 after 2) and were the first negative since November 2016.

The Kansas City-ISM equivalent index was down to 45.8 in August from 49.1 in July. The calculation does not have the best correlation to the ISM Manufacturing Index , but it does agree with the Philadelphia-ISM equivalent in signaling softer manufacturing conditions in August at the national level.

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