A Pickup in Manufacturing Activity in the Midwest

By June 30, 2011Economy

Two studies released today show that manufacturing activity is beginning to rebound in the Midwest. First, the Chicago Business Barometer from ISM-Chicago rose from 56.6 in May to 61.1 in June.  Measures of production and new orders rose significantly in the month, with the production index up from 56.0 to 66.9 and the new orders growing from 53.5 to 61.2.

While still below the levels reached earlier in the year, these figures are a good sign that the Midwest is recovering from the supply chain disruptions and other factors which cooled production in March, April and May. As further evidence of this, the survey suggests that the average lead time for capital equipment purchases is up to 135 days, its highest point since June 2006.

In addition, manufacturers are seeing prices grow at a slower pace, with the prices paid index falling from 78.6 to 70.5. This is largely consistent with other indicators which show pricing pressures easing somewhat in June. Meanwhile, the index for employment fell somewhat from 60.8 to 58.7; while this still signifies job growth in the sector, it does indicate a slower rate of growth than previous months.

Two downsides from the survey are the backlog of orders and inventories, both of which fell below 50, indicating declines.

The second release today was the Kansas City Federal Reserve Bank’s Manufacturing Survey for June, which mirrored the ISM-Chicago’s rebound in activity. The composite index rose from 1 to 14, which was equal to its level in April, erasing the declines from May. Measures for production, shipments, and new orders were up solidly. Highlighting the turnaround was the production index which grew from -2 to 22, with other indicators experiencing similar gains.

In its press release, Chad Wilkerson, a vice president and economist at the bank, said, “Factories in the region basically resumed their solid pace of growth from earlier in the year, following some disruptions in May.” He also observed that employment edged higher, with positive production and hiring intentions over the next six months.

In other findings, pricing pressures moderated somewhat in the Kansas City district, but still remain elevated. The index for raw materials inventory rose substantially from 1 to 16, while the inventory for finished goods was the same in June as in May. Capital expenditures and new export orders remained virtually unchanged from the previous month.

Chad Moutray is chief economist, National Association of Manufacturers.

Chad Moutray

Chad Moutray

Chad Moutray is chief economist for the National Association of Manufacturers (NAM), where he serves as the NAM’s economic forecaster and spokesperson on economic issues. He frequently comments on current economic conditions for manufacturers through professional presentations and media interviews. He has appeared on Bloomberg, CNBC, C-SPAN, Fox Business and Fox News, among other news outlets.
Chad Moutray

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