There has been no shortage of strong readings on the manufacturing sector of late and this morning’s release of the Kansas City Manufacturing index was yet another point of this. The index was already at a record high in March but it gained another 5 points this month. Expectations pulled back slightly but remain right around some of the highest levels in the history of the survey.
With overall growth accelerating at a record pace, half of the individual categories of the report also set new records. Even for those that did not set a new record, almost all of the April readings were at least in the top few percentiles of all readings. As shown below, every index is now showing expansionary readings after the index for Finished Good Inventories rose to 8 from -10 last month. Additionally, there were only two indices that were lower month over month: New Orders and Supplier Delivery Times. In spite of those declines, both of those indices are coming off of record or close to record highs. In other words, even after declining they remain historically elevated.
New Orders continue to grow at a historically strong rate albeit decelerated from March as that index fell 9 points to 29. Given the further growth in orders, backlogs are continuing to rise at an increasingly rapid pace. That index gained another 3 points to reach a new high of 35. This month marks the third in a row that the index for unfilled orders came in at a record high. To meet this demand, firms appear to have massively ramped up production as the index topped 40 after gaining 17 points month over month. Although production is rapidly accelerating, shipments are lagging a bit. That index is also at a strong level of 32 but it only rose 5 points.
One likely reason for a more throttled reading on shipments is supply chain issues. As shown below, Delivery Times still remain extremely elevated. Even after pulling back in April, the index is well above anything observed prior to the past several months. Highlighted comments also make mention of these issues. For example, one comment states that “It is very difficult to handle the increased business with supply chain issues across all materials and finding anyone who wants to work” while another mentioned the company is, “facing significant supply chain problems due to COVID-19 issues, tariff issues, and the weather problems in Texas earlier this year”. On the bright side, expectations for Delivery Times plummeted in April as the index collapsed by 14 points. That is in the bottom percentile of all monthly moves.
Commentary also frequently mentioned increases in prices and the data backs up that anecdotal evidence. Both indices for Prices Paid and Prices Received rose to record highs this month. The same can be said for expectations of prices paid. The commentary gave a bit more color to this with mentions of inputs like steel contributing to those increases. Labor shortages were another area blamed for rising prices.
On the topic of labor, the indices for Number of Employees and Average Workweek are both at new highs. Expectations also remain extremely optimistic with the former at the highest level to date and the latter just off the prior high of 32 from June 2018. Again circling back to the commentary section, one firm noted that “Entry-level pay will need to be increased. This will create pressure on all other positions” and another stated that they “cannot get people to apply. We pay upwards of $20 or more per hour with full benefits”. In other words, even with employment metrics rising at a record rate, there is still plenty of demand on the part of employers. Click here to view Bespoke’s premium membership options for our best research available.