US DATA: KC Fed Manufacturing Shows Weaker Employment, Higher Inflation

The Kansas City Fed's composite index of regional manufacturing activity was unchanged in February at -5, versus an expectation for a marginal improvement (-4 expected, -5 prior), and suggesting that regional factory activity continued to fall. 

• There were two noteworthy deteriorations in the internals, however: a large jump in prices paid, to 38 vs 18 the month prior for a 29-month high, while employment fell sharply to -14 from positive 1 for the lowest reading since April 2020 (ie the start of the Covid pandemic).
• Elsewhere, the month-to-month changes were relatively marginal: new orders edged down to -7 from -6 while 6-month expectations were mixed (composite 14 vs 15 prior, production 30 vs 28 prior). Production fell to -13 from -9.
• Unlike its other regional Fed counterparts, the KC survey has basically not shown any change in the headline composite post-November election (it's been either -4 or -5 in each month since October).
• There has been a sustained rise in expectations and new orders, suggesting a stronger outlook for 1H 2025.
• But the report points out that the composite index decline on a Y/Y basis vs January's -9 points  to -18, suggesting weaker activity than in the same period the year prior. And the sharp rise in prices and deterioration in employment is worrying, potentially presaged by KC Fed President Schmid earlier in the day speaking about potential simultaneous downside risks to economic activity with upside risks to inflation.
• There was a special question on tariff impacts, with anecdotes and responses largely echoing those seen in other regional Fed manufacturing surveys in terms of elevated uncertainty, though opinions were widely mixed on the activity impact.