The Kansas City Federal Reserve Bank said that manufacturing activity continues to contract, with its monthly composite index in negative territory for the third straight month. The composite index in December was -2, a slight improvement from the -4 and -6 readings of the previous two months. Pushing this figure lower has been reduced sales in the district, with the index of new orders declining in seven of the past nine months. Much of that decline stemmed from fewer exports, which have been down for seven consecutive months.

This pullback in activity was seen in a number of areas, including production, shipments, and employment. The sample comments show that worries about the fiscal cliff are on the minds of the business leaders in the Kansas City region. As one individual wrote, “Lack of clarity is discouraging. We cannot anticipate the effects of taxes, insurance, and other fiscal policy so we need to conserve cash.” Indeed, many of the commenters said that uncertainty was causing them to lower their outlook and reduce hiring plans.

Looking ahead, though, manufacturers continue to be positive about increased production, sales, and capital spending. The pace of new orders over the course of the next 6 months picked up a little, showing a degree of cautious optimism even among the worries about the fiscal cliff. With that said, it is also clear that employment growth will be weak at best, with hiring turning negative and the average workweek also lower. Pricing pressures are also anticipated to accelerate.

Nonetheless, this is another report showing weaknesses in the manufacturing sector, with anxieties about the global and U.S. economies first-and-foremost in business leaders’ minds.

Chad Moutray is chief economist, National Association of Manufacturers.

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