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Kansas City Fed Manufacturing Activity increased at a faster pace in January
Tenth District manufacturing activity increased at a faster pace in January compared to a month ago and was similar to year ago levels. Expectations for future activity rose further. Prices paid for raw materials continued to rise rapidly, to the highest reading since 2011. Prices for finished goods also expanded from a month ago and a year ago. District firms expected prices for both raw materials and finished goods to increase further in the next six months.
Factory Activity Increased at a Faster Pace
The month-over-month composite index was 17 in January, up from 14 in December and 11 in November. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. Activity rose more at durable goods plants, driven by manufacturing of primary metals, machinery, electronics, and transportation equipment. Production, shipments, new orders, employment, employee workweeks, new orders for exports, and supplier delivery time increased further in January and order backlog expanded at a steady pace. Materials inventories remained positive while finished goods inventories were slightly negative. Year-over-year factory indexes were somewhat mixed in January, but the composite index was flat at 0. The future composite index expanded to the highest level in over a year at 24, up from 17 in December.
This month contacts were asked special questions about the potential effects of widespread COVID-19 vaccination on business activity. 93% of contacts indicated widespread COVID-19 vaccination is important to their firm’s overall business outlook for 2021, with 40% indicating it is “somewhat important” and 53% calling it “very important” (Chart 2). Many contacts remarked on the need for a vaccine for both workers and consumers to increase business. Contacts also noted that continued COVID-19 outbreaks or related government shutdowns would have a significant negative impact in the near-term. For hiring, 14% of contacts indicated the COVID-19 vaccine rollout has negatively affected plans for 2021 because of the slow rollout so far (Chart 3). On the other hand, 8% of contacts noted the vaccine rollout has positively affected hiring plans for later in 2021. For capital spending, 15% of firms indicated the vaccine rollout has had negative effects on plans for 2021 again because of delays and hesitant demand from consumers. Conversely, 14% of firms reported positive capital spending plans for 2021 based on the vaccine rollout. Overall, many firms noted the vaccine rollout has had no serious impact on hiring and capital spending plans in 2021 because it is “too early” to tell or vaccine rollout is “too slow” to change plans.
Posted: January 28, 2021 Thursday 11:00 AM