UPDATE: The December reading of the Kansas City Fed Manufacturing Activity index is out.
The index rose to -2 from last month’s reading of -6.
Economists expected the index to tick up slightly to -5.
Below is a full breakdown of the changes in the sub-components of the index:
Photo: Kansas City Fed
Here is the full text from the release:
Tenth District manufacturing activity declined further in December, though by a smaller amount than in October or November. Factories’ production expectations were somewhat more optimistic than last month, but a higher share of firms plan to decrease employment in coming months. Approximately half of all contacts cited fiscal policy uncertainty as having impacted their hiring decisions. Price indexes mostly increased, particularly for future raw materials, with the increase driven heavily by food prices.
The month-over-month composite index was -2 in December, up slightly from -6 in November and -4 in October (Tables 1 & 2, Chart). The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. Manufacturing activity was stable at most durable goods producing plants, while nondurable producers cited further declines. Most other month-over-month indexes also edged up slightly in December but remained below zero. The production index inched higher from -6 to -5, and the new orders, order backlog, and new orders for exports indexes also rose but remained negative. In contrast, the employment and shipments indexes fell after rising last month. The raw materials inventory index increased from -7 to 1, but the finished goods inventory index decreased into negative territory.
Most year-over-year factory indexes fell from the previous month, with several indexes at their lowest levels since early 2010. The composite year-over-year index eased from 9 to 7, and the production, shipments, and new orders indexes all posted three-year lows. The employment index decreased from 22 to 13 after rebounding solidly last month. The order backlog index was unchanged, while the capital expenditures and new orders for exports indexes inched higher. Both inventory indexes increased for the second straight month.
The majority of future factory indexes edged slightly higher this month, with most indexes still in positive territory. The future composite index rose from 3 to 4, and the future production, shipments, and new orders indexes also increased. On the other hand, the future employment index decreased for the third straight month to its lowest level since July 2009. The future capital expenditures index fell from 8 to 3, and the future order backlog index also moderated slightly. The future raw materials inventory index declined from 2 to -3, and the finished goods inventory index also decreased. Many firms blamed fiscal uncertainty for their still modest expectations.
Most price indexes increased from the previous month. The month-over-month finished goods price index rose from 3 to 7, and the raw materials price index increased after falling last month. The year-over-year raw materials index was slightly lower, but the finished goods index rose from 28 to 35. The future raw materials price jumped from 41 to 59, and the future finished goods price index edged up, indicating more firms plan to pass recent cost increases through to customers.
Below are selected comments from survey respondents:
“Due to uncertainty relating to 2013 tax rates, we have decided to decrease hiring plans.”
“There is uncertainty about how capital equipment expenses will be taxed and uncertainty about how oil and gas exploration taxes will be changed, thus reducing demand for products used in drilling and production.”
“We import some components used in our products and the weak dollar has raised our costs significantly.”
“Increases in insurance costs and uncertainty on taxes certainly increase our caution in adding to the payroll at this time.”
“We do not feel that we have a handle on all the costs involved in health care and the impact of tax increases. Before we can hire anyone else, we need to make sure we can handle the people we have, cash-flow wise.”
“The uncertainty has stunted investment from our customer base on capital expenditures where are products are sold and used. Thus, lower bookings, lower sales, and lower employment.”
“Seeing strong cost increases in qualified craft labour, engineers, and professional management.”
“Lack of clarity is discouraging. We cannot anticipate the effects of taxes, insurance, and other fiscal policy so we need to conserve cash.”
“We believe fiscal uncertainties have kept potential buyers (corporate and private individuals) from purchasing new aircraft, and the current economic climate has kept existing fleet owners from flying as much, thus lower demand for our products and no need for additional hiring.”
ORIGINAL: Minutes away from the December reading of the Kansas City Fed Manufacturing Activity Index, out at 11 AM ET.
Economists expect the index to tick up to -5 from last month’s reading of -6.
We will have the release LIVE at 11 AM ET. Click here for updates >