Kansas City Fed Factory Gauge Contracts by Most Since 2016

(Bloomberg) --

Manufacturing in the Federal Reserve Bank of Kansas City’s district contracted in August by the most since March 2016, reflecting a slump in orders and weaker sales as trade tensions between the U.S. and China became more pronounced.

The composite index of factory activity dropped to minus 6 from minus 1 in July. A gauge of order volume slumped to the lowest since January 2016, while a measure of shipments matched the weakest reading since February. The Kansas City Fed’s district encompasses Kansas, Colorado, Nebraska, Oklahoma, Wyoming, western Missouri and northern New Mexico.

“Regional factory activity had its largest monthly drop in over three years, and over 55% of firms expect negative impacts from the latest round of U.S. tariffs on Chinese goods,” Chad Wilkerson, economist at the Fed bank, said in a statement.

Meanwhile, measures of prices paid and received by factories in the district both contracted by the most since 2016, a reflection of tepid world demand.

In response to a special question, more than 37% of manufacturers surveyed said that they expect trade tensions to persist another one to two years, while 20% saw them lasting longer.

The figures follow other August manufacturing data from regional Fed banks that were mixed. While factory activity in the Philadelphia region and New York state expanded, manufacturing in the Richmond district contracted.

To contact the reporter on this story: Vince Golle in Washington at vgolle@bloomberg.net

To contact the editors responsible for this story: Scott Lanman at slanman@bloomberg.net, Jeff Kearns

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