Kansas City Fed: Manufacturing Activity Experiences Modest Growth in July

By July 25, 2013Economy

In the most recent Beige Book from the Federal Reserve Board, activity in the Kansas City Fed was singled out for one of the few districts where manufacturing activity had weakened in June. Severe weather disruptions were the primary contributors of last month’s decrease, reversing the modest gain that was observed in May.

With that as a background, the July manufacturing survey was destined to be closely watched, looking for progress. Indeed, the Kansas City Fed found that manufacturing activity rebounded this month, with its composite index improving from -5 to 6. Chad Wilkerson, a vice president and economist at the Kansas City Fed, noted, “We saw several positive things in this month’s survey. Production and shipments rebounded after being disrupted by storms last month, [and] while some firms remain hesitant to expand, overall capital spending and hiring plans remain positive.”

The various subcomponents show the progress made since the past survey, with the index for new orders rising from -10 to 5 and the production index up from -17 to 21. This suggests a fairly healthy turnaround in activity, from contraction to modest growth. Export orders also turned positive, up from -5 to 2. Still, roughly half of the respondents suggest that sales and output activity was unchanged between June and July, with three-fourths noting flat export orders. This indicates that growth is perhaps not as broad-based or robust as we might like to see.

In fact, employment was negative for the month (down from -1 to -2), and the average workweek continued to shorten, even as there was a slowing in its decline (up from -13 to -6). The sample comments tend to back this up, with it clear that there is some hesitance to bring on new workers right now.

The good news, though, is that manufacturers are cautiously optimistic about future growth, with higher levels of new orders, production, capital spending, and employment expected. This is essentially the basis of the Kansas City Fed’s statement quoted above. The index for expected employment six months from now was unchanged at 7, indicating moderate growth in hiring moving forward. Behind this figure are higher anticipated sales, with 38 percent of respondents expecting orders to increase in the second half of this year. The more-positive perception of possible growth in the coming months is a consistent finding, and one that we have seen in other sentiment surveys, as well.

Chad Moutray is the 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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