Kansas City Fed: Manufacturing Activity Expanded for the Fourth Straight Month

By October 24, 2013Economy

The Kansas City Federal Reserve Bank said that the pace of growth in the manufacturing sector picked up a little in October. The composite index of general business activity rose from 2 in September to 6 in October. More importantly, this data suggests that manufacturers continue to see an expansion in their activity, with the composite index now positive for the fourth straight month. The average index value in those four months (July to October) was 5.5, indicating modest growth overall. Prior to that, the Kansas City Fed survey had reported contracting levels of activity for seven consecutive months (October to April).

Despite the overall increase in manufacturing activity, the underlying data were more mixed. Measures for production (up from 4 to 14) and shipments (up from 6 to 14) were encouraging, reflecting healthy gains for the month. The indices for these two components have been up strongly since June, highlighting the pickup in activity noted above over the past four months.

Yet, the data also have some warning signs. The pace of new orders has decelerated, with the index down from 15 in August to 8 in September to 3 in October. At the same time, export orders have been fairly weak over that same two month time period, falling in September and unchanged in October. The slowdown in sales could dampen output gains in the next month or so if it does not pick up again. The government shutdown was noted as one possible explanation of this, at least for some of the respondents.

Meanwhile, on the employment front, hiring remains a challenge (down from zero to -2), and the average workweek is up just slightly (up from -4 to 2).

Looking ahead, manufacturers in the Kansas City Fed region continue to reflect optimism for the next six months, but with less enthusiasm in October than in September. The forward-looking composite index dropped from 18 to 9, and the expected measures for production (down from 35 to 19), shipments (down from 31 to 15), and new orders (down from 20 to 14) were also off sharply. Yet, they were mostly positive overall, even with the easing in anticipated growth. Employment was expected to rise just barely (down from 14 to 3), suggesting continued sluggishness on the hiring front.

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), 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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