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First Cut: Kansas City Fed’s manufacturing recession deepens in December

The Kansas City Fed’s Manufacturing Index for December declined to -8 after -3 in November and was the lowest since -10 in February 2016. The manufacturing index for six months from now dipped to 10 in December after a jump to 15 in November. The District’s manufacturers are struggling with the downturn in the energy sector, uncertainties about trade and tariffs, and difficulties in attracting and retaining workers.

The index for new orders was down to -16 in December after -3 in November and has remained below neutral for six straight months. The index for new export orders have been in contraction for four straight months and was down to -11 in December after -6 in November. Order backlogs were thin at -16 in December after -3 in November and have also contracted in the past six months. The index for shipments fell to -6 in December after 7 in November and production contracted for a second month at -7 after -5.

Supplier delivery times remained narrowly positive at 3 in December after a bump up to 8 in November. Inventories of finished goods remained in contraction for a fourth month in a row at -9 in December, unchanged from the prior month.

Prices paid increased mildly for a second month in a row at 16 in December after 14 in November. Upward price pressures are generally tame. Prices received fell to -2 after 5 and showed that companies had little pricing power.

The Kansas City-ISM equivalent index retreated to 45.9 in December after 49.9 in the prior month. The Kansas City measure has been tracking the performance of the ISM Manufacturing Index fairly well of late. If the relationship remains good, it points to another month of recession in the ISM Manufacturing Index in December when that report is released at 10:00 ET on Friday, January 3.

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