Kansas City Fed Manufacturing Activity Positive for the First Time Since September

By May 23, 2013Economy

The Kansas City Federal Reserve Bank said that manufacturing activity in its District turned positive for the first time since September. The composite index improved from -5 in April to 2 in May. Even as other regional sentiment surveys had some progress earlier in the year, the Kansas City Fed survey continued to reflect more pessimism. Now, it appears to be one of the few indicating some slight growth, with surveys from the New York and Philadelphia Fed Banks reporting contractions last week.

The good news is that measures of production, shipments, and new orders were all higher for the month. The new orders index, for instance, shifted from being unchanged in March and April to modest growth (an index reading of 6) in May. Looking ahead six months, manufacturers were somewhat more upbeat about additional activity, with this cautious optimism increasing the forward-looking composite index from 4 to 11.

Still, there were also some areas to caution us from getting too optimistic. Export sales continue to be negative (for the 12th consecutive month), and hiring and the average workweek were both headed in the wrong direction. The index for the number of employees dropped from -3 to -7. Recognizing these weaknesses, Chad Wilkerson, a vice president and economist at the Kansas City Fed, observed that “activity remains at only about year-ago levels and firms are having difficulty passing cost increases through.” He said this even as he recognized the achievement of gains after seven months of declines.

The sample comments tend to add to the narrative provided by these numbers. Several respondents commented on their inability to pass along costs increases. Several comments focused on slower manufacturing activity. One individual, for example, said, “We had a better month last month, but it was  till very much lower than we should be this time of the year.” In addition to those comments, there were also those which focused on policy. As one company added, “Customers comment on the uncertainty of future health care costs and federal taxes. Both issues are creating too much uncertainty  for many companies to spend discretionary dollars.”

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) and the Director of the Center for Manufacturing Research for The Manufacturing Institute, 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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