The Kansas City Federal Reserve Bank said that the pace of growth in manufacturing activity slowed in September. The composite index of general business activity declined from 8 in August to 2 in September. The good news is that the index has reflected expansion – albeit a very modest one – in four of the past five months (May to September), with contraction in the seven months prior to that (October to April). As such, there continues to be progress for manufacturers in the district in terms of new orders and production, but these improvements are far from robust.
Much of the data in September reflected a pullback from August’s measures. For instance, the index for new orders dropped from 15 to 8. Data for shipments and production were similar. One factor that hurt the sales figure was a decline in exports growth, with the new export orders index down from 4 to -6. On the hiring front, employment was unchanged in September (down from 4 to zero), suggesting that firms continue to be hesitant to bring on new workers.
With that said, the sample comments show the paradox in hiring that we hear from many of our manufacturing members. While hiring growth remains slow, those businesses that are adding new employees note challenges with attracting and retaining workers (e.g., the skills gap). Several respondents made comments along those lines, including the following:
- “General labor is very difficult to find in order to fill our manufacturing positions. Educated workers are even harder to find.”
- “… we are having to train people that come to us with no experience or skill.”
- “Have difficulty in hiring engineers and accountants.”
- “Our industry has lost labor force to the oil and gas industry, which is not really paying more hourly but is giving a lot more overtime.”
Other commenters echoed frustrations with the slow pace of growth. For instance, one individual said, “We keep hearing the economy is getting better, but we have not seen an improvement.” Similarly, another manufacturer labeled their sales as “flat” with “some upward price pressure on our raw materials.”
Despite these comments, the forward-looking questions continue to suggest cautious optimism for the next six months. The expectation composite index rose for the second month in a row, up from 7 in July to 9 in August to 18 in September. Numbers for new orders, production, shipments, employment, and capital spending were all higher. Nonetheless, the average employee workweek was expected to increase only marginally (up from 1 to 3), indicated some tentativeness moving ahead. Pricing pressures are expected to pick up, as well.
Chad Moutray is the chief economist, National Association of Manufacturers.