Similar to the Philly Fed’s index and Markit’s preliminary reading on the manufacturing sector, the Kansas City Fed’s manufacturing index exceeded expectations with a strong reading in January.   The index was expected to decline to 13 from last month’s reading of 14.  Instead, the index rose to 17 which is a new high for the pandemic period and is also the highest level since July of 2018.  Similarly, the index for expectations was considerably higher as it now sits at the highest level since September of 2018.  These readings are consistent with further acceleration in the growth of the region’s manufacturing economy.

Breadth across the report’s components was very strong with all but two (Backlog of Orders and Materials Inventories) higher month over month.  Only the index for Finished Good Inventories is in contraction, but even this index saw a move higher that stood in the top 94% of all monthly changes.  Additionally, a number of components are in the top decile of their historical ranges.  The indices for future expectations, on the other hand, were not quite as strong, but those also generally point to an optimistic outlook.

Demand appears to be healthy as the indices for New Orders, Backlog of Orders, Shipments, and Production all came in at the top 10% of historical readings.  While New Orders and Production sit just below their highs from October, Shipments and Backlog of Orders are at the highest levels since November of 2018.  As for expectations, each of these indices with the exception of Backlog of Orders reached the highest levels since 2018 as well.

Just as we have seen in various other readings on the manufacturing sector recently, prices continue to rise for both inputs and final goods.  The reading on Prices Paid for Raw Materials rose to a new high of 65.  That is a level that has not been seen since April of 2011. As for prices passed onto customers, the index for Prices Received for Finished Products did not see as dramatic of a move higher.  With an increase of 10 points (to 19) in January, it is at the highest level in two years. Click here to view Bespoke’s premium membership options for our best research available.

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