The Kansas City Federal Reserve Bank said that manufacturing activity in its district has declined for 13 straight months. Still, the composite index of general business conditions increased from -12 in February to -6 in March, its best reading (albeit negative) since November. Reduced crude oil prices, the strong dollar and weaknesses abroad have pressured the sector’s performance, especially since the district includes energy-intensive Oklahoma. The slight improvement in the overall pace of decline in March reflected some stabilization for new orders (up from -15 to -2). Along those lines, the percentage of respondents saying that their new orders had increased for the month rose from 18 percent in February to 32 percent in March, which was somewhat encouraging.
Yet, other measures pulled back in March, indicating that manufacturers in the region remain highly challenged. This included production (down from -8 to -14), shipments (down from -11 to -15) and exports (down from -6 to -10). The labor market data eased marginally in their rate of growth for the month, but the pace of decline for hiring (up from -20 to -12) and the average workweek (up from -14 to -13) indicated that employment growth remained a significant problem. Looking at all of the current data, it should not be a surprise that manufacturers in the region remained anxious.
Meanwhile, the forward-looking composite index returned to negative territory for the first time since September, falling from 4 to -2. Many of the key subcomponents also declined, including new orders (down from 15 to zero), production (down from 16 to 5), shipments (down from 20 to 5) and hiring (down from 3 to 1). With that said, one-third of those completing the survey felt that new orders would rise in the next six months. While that was down from 42 percent who said the same thing in the last survey, it remained better than the 27 percent who expect sales to decline. So, perhaps the data are not as bad as seen at first glance. (There is also likely a seasonal adjustment factor at play in the March data.) Exports (up from -1 to zero) were anticipated to remain neutral over the coming months, but capital expenditures (unchanged at -9) were expected to continue to contract.