Kansas City Fed Manufacturing Activity Unexpectedly Drops

Weighed down by increased uncertainty due to trade concerns and weaker domestic demand, Tenth District manufacturing activity unexpectedly slid into mild contraction in July, with the composite index edging down 1 point to minus 1. Weaker than the consensus forecast calling for a modest rebound, the drop in the composite reading was led by the volume of new orders, down 7 points to minus 2, and employment, down 11 points to minus 6. Production also fell, with the subcomponent shedding 3 points to minus 6, and backlog of orders declined 6 points to minus 13.

But not all the news was negative in the monthly survey, as shipments rebounded after declining sharply previously, gaining 7 points to a flat reading of 0. Supplier delivery times rose 9 points to 6. Inventories were mixed, with materials rising 4 points to 1 but finished goods falling 7 points to minus 1. And expectations for the next six months remained optimistic, though at 9 the expectations composite reading was the weakest in a year.

Price indexes were mixed, falling 1 point to 2 for prices received and rising 6 points to 15 for prices paid.

Today's survey from Kansas joins yesterday's Richmond Fed survey in showing manufacturing in contraction in their respective region, scaling back expectations of a general rebound in the nation's flagging manufacturing sector that were aroused by last week's positive Philly Fed and Empire State surveys, which will likely strengthen the case for more accommodation from the Fed.