The Kansas City Federal Reserve Bank noted a modest pickup in the growth of manufacturing activity. Its composite index increased from 6 in September to 8 in October. That marks an improvement from the index value of 3 observed in July and August, but still represents a slowdown from the 27 noted in March.
Still, unlike other sentiment surveys, the Kansas City survey never turned negative/contracted in recent months. It has been positive for 22 consecutive months.
Looking at the components of this index, measures for production and shipments grew a slightly faster pace than in September, but the growth of new orders slowed somewhat, but was still positive. Employment variables were mostly unchanged from the previous month, reflecting modest growth in the number of jobs in the sector for the region.
The backlog of orders contracted, but not as much as the previous month. Pricing pressures remain an issue, with elevated, but eased raw material costs and a reduced ability to pass those along in the form of higher finished good prices.
Expectations are positive for the next six months, with respondents generally more optimistic than in September. The expected pace of growth looking forward was greater in all of the key variables, including measures for new orders, production, shipments, employment and capital expenditures. The participants in this survey expect for raw material prices to jump significantly over the next six months, with the index standing at 54, unchanged from the previous month, but lower than the 81 recorded in March).
Overall, these numbers show that manufacturing in the Midwest continues to be stronger than other regions of the country (e.g., the Mid-Atlantic). Manufacturers in the Kansas City region continue to benefit from strong production numbers, particularly in durable goods.
Chad Moutray is chief economist, National Association of Manufacturers.
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