Bucking the observations of many of its peers, the Kansas City Federal Reserve Bank said that manufacturing activity in its region improved for the second month in a row. The monthly composite index rose from 5 in July to 8 in August, suggesting modest growth among manufacturers. Several of its regional Fed counterparts have found contracting or slowing levels of production, but the Kansas City data suggest that overall activity has remained so far in 2012. Still, today’s report does indicate some weaknesses from the beginning of the year.
The data indicate increased levels of new orders and shipments, with both shifting from decreases to modest growth. Export orders, though, remain negative, albeit less so than last month. With slowing global growth, this is not surprising. Despite some improvements, these have not translated over to employment yet. The pace of hiring slowed in August, and the average employee workweek declined.
Pricing pressures have started to rise, with the index of prices paid up from 7 in June and 18 in July to 26 in August. At the same time, the prices of finished goods remain unchanged.
Moving forward, manufacturers in the Kansas City region anticipate stronger growth in the coming months. The composite index of business activity for six months from now rose for the second month in a row, up from 13 in July to 16 in August. This optimism carries across-the-board to production, new orders, capital spending, and employment. But, there are also possible signs of concern. Export orders are anticipated to increase just slightly, and raw material prices are forecasted to grow rapidly.
In short, manufacturing in the Midwest appears to be growing more rapidly than elsewhere in the country. Data from the Chicago Fed released earlier in the week also were more positive, with that report driven mostly by higher auto production. Despite the more upbeat assessments, though, this survey does suggest that export and employment growth remain challenges right now, and future activity hinges on improvements in the global and domestic economy, with significant downward risks to both. In addition, as the press release notes, the improvements in this month’s indices were “in spite of the ongoing drought having a negative impact on producers of agriculture equipment.”
Chad Moutray is chief economist, National Association of Manufacturers.
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