The Kansas City Fed’s Manufacturing Index remained in contraction for a fourth month in a row in October. The index slipped to -3 after -2 in September, a reading that is in line with recent months that suggested that conditions are significantly worsening although these are weak. The six-month composite index slid lower to 2 in October from 5 in September and reached its lowest reading since -1 in March 2016. Soft conditions in the present do not look to give way to a rebound any time soon.
Survey respondents cited weak new orders generally and in some cases problems from no trade agreement with China specifically. The remarks were not without bright spots and some respondents continued to lament labor shortages and lack of quality workers.
For the survey as a whole, new orders plunged to -13 in October from -3 in September which followed -16 in August. New orders are weak and uneven. Order backlogs improved to -11 from -19, a still weak level. Shipment were flat in October after 9 in September.
Employment remained in contractionary territory for a fourth month in a row at -6 in October after -13 in September. The average workweek slowed to 3 from 10 in the prior month. Businesses are likely to rely on present workforces to fill what orders there are and opt to expand the workweek rather than try to bring on new workers.
Delivery times widened a bit to 3 in October from 1 in September, but remained near the neutral mark that indicates goods are moving neither too fast nor too slow. After signs of a correction in the July-September period, the October reading for finished goods inventories was 0 (zero) after declining to -9 in September. Businesses will be cautious about accumulating goods going forward.
The index for prices paid continued to signal no significant upward pressures for input costs at -1 in October after -6 in September. Prices received actually picked up a bit at 4 from 1, but this is not more than month-to-month noise. Businesses have limited pricing power.
The Kansas City-ISM equivalent index — calculated from the five components closest to the ISM Manufacturing Index — bumped up to 49.2 in October from 48.7 in September. There is no substantive hint of a pickup in activity for the manufacturing sector with the index reading sub-50 for four straight months. Taken in context with the three other regional surveys available, it is hard to forecast more than a mild gain for the ISM report from the 47.8 in September when that data is released at 10:00 ET on Friday, November 1.
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