The Kansas City Federal Reserve Bank reported that manufacturing activity contracted for the second month in a row. The composite index fell from -4 in October to -6 in November.
The weaker data stem from sharp reductions in sales, which have fallen for six of the past eight months. The new orders index declined from -11 to -14 for the month, with exports shrinking for six consecutive months on slower global growth. With reduced sales, production was also lower, and employment was unchanged.
With this softness, manufacturers in the Kansas City region have become less optimistic about the next six months. The forward looking composite index has declined from 16 in September to 3 in both October and November. This suggests modest growth, but the pace is much slower than earlier forecasts. Expectations for new orders, production, shipments, and capital spending are also anticipating moderate growth consistent with this eased outlook. Hiring is not expected to change, and export sales are not anticipated to improve.
This analysis is consistent with other regional surveys showing stalled manufacturing activity right now. Uncertainties surrounding weak sales and the fiscal cliff are are hampering growth. This is further evidence that policymakers need to act sooner rather than later to avert further damage to the economy. This would go a long way toward reducing the anxieties that currently exist.
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