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First Cut: Kansas City Composite Manufacturing Index plunged in March

The Kansas City Fed survey of manufacturing joined that from New York and Philadelphia Feds in reflecting an abrupt change of pace in March. The Composite Manufacturing Index plunged to -17 in March after 5 in February. The index for six months from now was even gloomier with a decline to -19 from 16. Survey respondents laid the blame largely at the door of COVID-19 and expressed concerns about getting back on track once the danger has passed. In particular, worries about losing skilled labor in layoffs and due to idling production were common. Declining oil prices were also a big concern.

The survey saw a huge drop in the new orders index to -38 in March after 8 in February and was the lowest since -40 in November 2008. The backlog of new orders contracted for a 12th month in a row and fell to -41 in March, its lowest since -40 in November 2008. Declines in orders included cancellations and the index for shipments was down to -23 after 9.

The index for employment contracted to -32 in March after -4 in February and was the lowest since -38 in March 2009. The average workweek contracted at -15 in March from -2 in February, as businesses had less for workers to do and needed fewer workers to do it.

Delivery times widened to 13 in March from 11 in February which was due more to delays along the supply chain than strong activity creating bottlenecks. Inventories were down sharply at -12 after 2 in the prior month.

The index for prices paid followed oil prices lower to -13 in March after 14 in February and was the lowest since -15 in December 2015. The index for prices received was down to -6 in March after 9 in the prior month and was the lowest since -6 in October 2016.

The Kansas City-ISM equivalent index declined to 40.9 in March after 53.0 in February. The index has a decent correlation with the ISM number (0.755). Combined with the drops for New York and Philadelphia, there is a strong indication that the ISM Manufacturing Index will be noticeably below the 50-mark when the data is released at 10:00 ET on Wednesday, April 1.

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