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First Cut: Kansas City Fed Manufacturing Index continued to contract modestly in November

The Kansas City Fed’s Manufacturing Index for November was unchanged at -3, in line with sluggish activity for the past five month. Although the present seems weak, expectations for six months from now rebounded to 15 in November from 2 in October and was the strongest since 22 in March. This probably reflected hopes that some trade negotiations with China would be resolved soon. As for current conditions, survey respondents widely cited difficulties in finding and keeping a skilled workforce to meet production needs.

Although the subindexes were generally remained soft, some readings were less negative.

Importantly, the index for new orders rose to -3 in November from -13 October. New orders have contracted for the past five months. It isn’t clear whether the improvement will be sustained, but any hint that orders are getting some relief will be welcome. Order backlogs have now registered negative readings for eight months, but where the less contrationary at -8 in November after -11 in October and have improved for a second month in a row. New export orders were little changed at -6 in November after -7 in October and haven’t seen expansion since May.

Hiring was negative for a fifth month in a row at -9 in November after -6 in October. Some of that could be the shortage of skilled workers, but it cannot be ignored that production is down and fewer workers and hours are needed. The index for the average workweek was at -6 in November after 3 in October.

Production was down at -5 in November after 8 in October. Shipments was at 7 after 0 as what new orders there were moved through the system quickly.  Supplier deliveries rose to 8 after 3 in the prior month, extending the uneven month-to-month behavior of 2019. However, deliveries are moving more-or-less at a pace consistent with no bottlenecks. Manufacturers are keeping inventories from accumulating. The index for finished goods inventories was -4 in November after 0 (zero) in October and has not expanded since May.

The index for prices paid jumped to 14 in November after -1 in October and three months of contraction. There was probably less downward pressure from energy costs. Prices received were about unchanged at 5 in November after 4 in October. Pricing power remained minimal.

The Kansas City-ISM equivalent index calculation was 49.9 in November after 49.2 in October and has been on the upswing for four straight months. However, conditions as reflected by the index remain in contraction for the manufacturing sector.  The Kansas City measure doesn’t have the best correlation with the ISM Manufacturing Index among the five District Bank surveys, but it is a decent one and has been among the better indicators of late. Although it is up a bit, it does line up with the data from New York and Philadelphia that points to soft or softening conditions.

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