The Kansas City Federal Reserve Bank said that manufacturing activity declined for the fifth straight month in July, albeit at a slower pace than in either May or June. The composite index of general business conditions increased from -13 in May to -9 in June to -7 in July. Overall, manufacturers continue to report contracting levels of activity, with reduced crude oil prices, the strong dollar and weaknesses abroad pressuring the sector’s performance. Indeed, various measures of activity were negative across-the-board, even with some of them showing a slower rate of decline for the month. This included new orders (down from -3 to -6), production (up from -21 to -5), shipments (up from -15 to -2) and exports (down from -5 to -10). Exports have now declined for seven consecutive months.
The job market was also weaker, with the indices for employment (down from -9 to -19) and the average workweek (down from -13 to -18) both shifting further into negative territory. Slightly more than one-quarter of respondents cited declining employment levels in July, with just 11 percent noting increases.
With that said, Chad Wilkerson, a vice president and economist at the Kansas City Fed, added that “firms expect a modest pickup in activity in the coming months.” Along those lines, the index for expected new orders rose from 9 to 13, its highest level in three months. There are also ever-so-modest gains anticipated over the next six months for production (down from 11 to 5), shipments (down from 10 to 6), employment (up from zero to 3), capital expenditures (down from 13 to 1) and exports (up from zero to 2).
As such, while growth in the sector is predicted to expand moving forward, that pace is seen as being far from robust, with some of those outlook measures easing for the month. Still, one could make the case that activity has stabilized for a few of these measures. For example, while two-thirds of those completing the survey predict no change in exports over the next six months, there is a small net positive expecting increases – a possibly encouraging development from just two months ago when those expectations were strongly negative.
Chad Moutray is the chief economist, National Association of Manufacturers.