US Kansas City Fed Mfg Activity Feb: 24 (est 15; prev 17)

US Kansas City Fed Mfg Activity Feb: 24 (est 15; prev 17)





Strong regional reports continue with KC Fed mfg rising to 24 vs. 15 est. & 17 in prior month (barely below recent peak in May 2018 and now up y/y for first time since a year ago). Production, employment, and average employee workweek all up as was six-mth outlook to the highest since summer 2018. Also rising though were prices with raw materials prices second highest increase in survey history.

“Regional factories reported higher activity in February,” said Wilkerson. “Most businesses reported more production and shipments, despite some difficulties due to the extreme weather events recently. However, rising materials prices and shipping delays have negatively affected 85% of firms.” 

Manufacturing activity growth was driven by durable goods plants, specifically by primary and fabricated metals, machinery, and transportation equipment. Month-over month indexes for production and employment increased at a faster pace in February and supplier delivery time rose significantly. Shipments and new orders growth was positive in February, but slower than in recent months. Materials inventories expanded while finished goods inventories declined. Year-over-year factory indexes were positive in February in the first time since February 2020. However, employment continued to lag year-ago levels. The future composite index rose further to 34 up from 24 in January, with an uptick in capital spending plans.
On the special question, I've been saying there's likely a lot of skills mismatch as workers from hard hit industries don't always have the right skills for those that are flourishing.  This was confirmed:

This month contacts were asked special questions about worker shortages as well as materials prices and shipping delays. 71% of contacts indicated workers are in short supply overall. Half of firms recorded that a skills match is a key reason for the short supply of workers and 44% indicated the extra unemployment benefits are another reason (Chart 2). Over a third reported that the worker shortage is due to workers unwilling to return to work due to COVID, taking care of family, childcare issues, etc. Over a quarter of firms noted that the lack of childcare for their current workforce has resulted in excessive absenteeism and a reduction in productivity. Concerning costs and shipping, 85% of contacts said their business has been negatively affected by rising material prices and lack of availability/delivery time (Chart 3). Several firms indicated materials prices are rising faster than they are able to pass on to customers, negatively impacting profit margins. Additionally, recent weather events exacerbated delivery time delays. 
On the comments almost none were about not enough demand. All related to problems with the weather, staffing, input costs, or supply issues.



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