The Kansas City Federal Reserve Bank said that manufacturing activity in its District turned positive for the first time since September. The composite index improved from -5 in April to 2 in May. Even as other regional sentiment surveys had some progress earlier in the year, the Kansas City Fed survey continued to reflect more pessimism. Now, it appears to be one of the few indicating some slight growth, with surveys from the New York and Philadelphia Fed Banks reporting contractions last week.

The good news is that measures of production, shipments, and new orders were all higher for the month. The new orders index, for instance, shifted from being unchanged in March and April to modest growth (an index reading of 6) in May. Looking ahead six months, manufacturers were somewhat more upbeat about additional activity, with this cautious optimism increasing the forward-looking composite index from 4 to 11.

Still, there were also some areas to caution us from getting too optimistic. Export sales continue to be negative (for the 12^th consecutive month), and hiring and the average workweek were both headed in the wrong direction. The index for the number of employees dropped from -3 to -7. Recognizing these weaknesses, Chad Wilkerson, a vice president and economist at the Kansas City Fed, observed that “activity remains at only about year-ago levels and firms are having difficulty passing cost increases through.” He said this even as he recognized the achievement of gains after seven months of declines.

The sample comments tend to add to the narrative provided by these numbers. Several respondents commented on their inability to pass along costs increases. Several comments focused on slower manufacturing activity. One individual, for example, said, “We had a better month last month, but it was  till very much lower than we should be this time of the year.” In addition to those comments, there were also those which focused on policy. As one company added, “Customers comment on the uncertainty of future health care costs and federal taxes. Both issues are creating too much uncertainty  for many companies to spend discretionary dollars.”

Chad Moutray is chief economist, National Association of Manufacturers.

The Federal Reserve Bank of Kansas City released its April Manufacturing Survey today and the composite index fell slightly to -5. This is improved from the -10 we saw in February but is relatively the same as last month’s index.

Firms reported optimism on future activity but several reported a deteriorating outlook since earlier in the year. One of the firms survey commented, “Our expectations for future increases have cooled considerably in the last few months. New business opportunities are not coming forth as previously expected. Retailers are making changes in supply as expected, probably driven by more aggressive pricing tactics by incumbent suppliers.”

Tomorrow we will see what the GDP report says for the first quarter this year. The durable goods orders yesterday showed that manufacturing has slowed somewhat over the past few months. The impact of the sequestration and other global concerns are starting to have a real impact.

Two manufacturing surveys released this morning provide a mixed picture of what is happening in the Midwest, with one showing a strong rebound and the other reflecting continued weaknesses.

For its part, the Kansas City Federal Reserve Bank reported that manufacturing activity in its District contracted for the fifth consecutive month. The composite index of general business activity fell from -2 in January to -10 in February. All of the key measures of activity were down sharply across-the-board, including new orders, shipments, production, the average workweek, and inventories. For example, the index for sales dropped from -2 to -25, the largest shift of any of the sub-components. As is often the case, worries about sales tend to depress sentiment.

The sample comments provided some reference to significant decline. One respondent cited the bad weather, with blizzard conditions in the Kansas City region closing facilities. This individual said, “That is putting us behind last year.”

Many of the other comments centered on the across-the-board federal budget cuts, which are slated to go into effect on March 1. A manufacturer said, “Very concerned about the reduction in military spending which will likely happen. This could force us to reduce planned capital spending.” Another respondent added, “Sequestration is causing customers to delay and/or push back orders.”

Despite the dramatically lower data for February, manufacturers in the Kansas City Fed District remained cautiously optimistic about higher activity over the next six months, albeit less so that in January. The forward-looking composite index decreased from 7 to 4, but the index for new orders was still strong at 15 (down from 19 the month before). While hiring is expected to increase slowly in the coming months, the manufacturers surveys anticipate capital spending to rise (up from 3 to 18). (continue reading…)

The Kansas City Federal Reserve Bank said that manufacturing activity continues to contract in its District. Using data that was revised with new seasonal adjustments, the composite index has been negative for four consecutive months, down slightly from -1 in December to -2 in January. With the Kansas City data, we have now had four straight surveys from regional Fed banks showing contracting levels of activity (including New York, Philadelphia, and Richmond). At a minimum, this shows the degree of anxiety that it out there on the part of manufacturers.

Indeed, many of the sample comments provided in the press release tend to focus on uncertainties in the marketplace and frustrations with the U.S. fiscal situation. One individual wrote, “Economic uncertainty has made our customers reluctant to place orders more than a month in advance and it appears most are cutting their inventory on hand which further depresses orders.” Another respondent added (possibly as a reaction to the fiscal cliff deal), “Fiscal issues are not truly resolved and we remain cautious relative to all hiring, investment, and other business expansion.”

These comments flow through to the underlying survey data, as well. Despite some improvement in the index for new orders from -5 to -2, sales declined in 8 of the last 10 months. This highlights the weaknesses in the current environment. Other indicators in negative territory include production, shipments, employment, exports, and inventories. The prices paid for raw materials also appear to remain elevated even with some easing in this month’s figures.

The good news is that forward-looking expectations for the next six months continue to be positive, albeit less so than was seen in September or before. Manufacturers remain cautiously optimistic about higher levels of activity over the coming months, including an increased expectation for new orders. Capital spending and hiring plans, though, suggest only light growth ahead. Again, that is consistent with other surveys – such as the NAM/IndustryWeek one – which show manufacturers pulling back somewhat, at least for now.

 Chad Moutray is chief economist, National Association of Manufacturers.

The Kansas City Federal Reserve Bank reported that manufacturing activity contracted for the second month in a row. The composite index fell from -4 in October to -6 in November.

The weaker data stem from sharp reductions in sales, which have fallen for six of the past eight months. The new orders index declined from -11 to -14 for the month, with exports shrinking for six consecutive months on slower global growth. With reduced sales, production was also lower, and employment was unchanged.

With this softness, manufacturers in the Kansas City region have become less optimistic about the next six months. The forward looking composite index has declined from 16 in September to 3 in both October and November. This suggests modest growth, but the pace is much slower than earlier forecasts. Expectations for new orders, production, shipments, and capital spending are also anticipating moderate growth consistent with this eased outlook. Hiring is not expected to change, and export sales are not anticipated to improve.

This analysis is consistent with other regional surveys showing stalled manufacturing activity right now. Uncertainties surrounding weak sales and the fiscal cliff are are hampering growth. This is further evidence that policymakers need to act sooner rather than later to avert further damage to the economy. This would go a long way toward reducing the anxieties that currently exist.

The Kansas City Federal Reserve Bank said that manufacturing activity in its district was slower in October, with its monthly composite index down from 2 in September to -4 in October. This was its first negative reading since December, as unlike many other regional sentiment surveys, the Kansas City region had continued to see modest growth up until now.

According to Chad Wilkerson, the bank’s vice president and economist, “We saw factories pull back this month for the first time in a while, which many firms attributed to the impact of uncertain political and fiscal situation on customers’ willingness to order.”

The various components of the index were all lower. The index for new orders has dropped from 11 in August to -2 in September to -11 in October. This suggests a high degree of deterioration in sales volumes, with 5 of the past 7 months seeing negative values for new orders. Other contracting items included production, shipments, exports, and employment. The prices paid for raw materials remained elevated, reflecting the pickup in costs seen in the past few months.

Manufacturers in the Kansas City region are also less optimistic about the future than they were less month. The composite index for business activity for six months from now decreased from 16 to 3. Measures for production, shipments, new orders, and hiring all remained positive, but with each of them easing from the levels observed in the prior month. The average workweek and export sales are expected to decline on average in the coming months. One bright spot is capital spending, with its forward-looking index rising from 11 to 16, suggesting some modest gains in the number of firms planning investments. (continue reading…)

Two of the Midwestern Federal Reserve regions reported slower manufacturing activity in their most recent surveys. First, the Kansas City Federal Reserve Bank said that its monthly composite index dropped from 8 in August to 2 in September. This suggests that manufacturers in its region were growing more slowly this month.

Indeed, several of the components were consistent with other Fed regions that have noted contracting activity. The Kansas City Fed’s previous survey had bucked the trend somewhat with stronger levels of production and new orders, but this month, global and national weaknesses have appeared to have taken their toll.

The index for new orders, for instance, dropped from 11 to -2, with similar negative values observed for production, shipments, the average workweek, and exports. Job creation has slowed to a near standstill, with the employment index down from 2 to 1.

Meanwhile, pricing pressures have picked up, with the prices paid for raw materials beginning to creep higher. The index for raw material prices has risen from 7 in June to 26 in August to 30 in September. Looking ahead six months, most manufacturers expect for these costs to increase, with the forward-looking index of raw material prices at 60 in September, up from 49 in August. (continue reading…)

Bucking the observations of many of its peers, the Kansas City Federal Reserve Bank said that manufacturing activity in its region improved for the second month in a row. The monthly composite index rose from 5 in July to 8 in August, suggesting modest growth among manufacturers. Several of its regional Fed counterparts have found contracting or slowing levels of production, but the Kansas City data suggest that overall activity has remained so far in 2012. Still, today’s report does indicate some weaknesses from the beginning of the year.

The data indicate increased levels of new orders and shipments, with both shifting from decreases to modest growth. Export orders, though, remain negative, albeit less so than last month. With slowing global growth, this is not surprising. Despite some improvements, these have not translated over to employment yet. The pace of hiring slowed in August, and the average employee workweek declined.

Pricing pressures have started to rise, with the index of prices paid up from 7 in June and 18 in July to 26 in August. At the same time, the prices of finished goods remain unchanged.

Moving forward, manufacturers in the Kansas City region anticipate stronger growth in the coming months. The composite index of business activity for six months from now rose for the second month in a row, up from 13 in July to 16 in August. This optimism carries across-the-board to production, new orders, capital spending, and employment. But, there are also possible signs of concern. Export orders are anticipated to increase just slightly, and raw material prices are forecasted to grow rapidly.

In short, manufacturing in the Midwest appears to be growing more rapidly than elsewhere in the country. Data from the Chicago Fed released earlier in the week also were more positive, with that report driven mostly by higher auto production. Despite the more upbeat assessments, though, this survey does suggest that export and employment growth remain challenges right now, and future activity hinges on improvements in the global and domestic economy, with significant downward risks to both. In addition, as the press release notes, the improvements in this month’s indices were “in spite of the ongoing drought having a negative impact on producers of agriculture equipment.”

Chad Moutray is chief economist, National Association of Manufacturers.

The Kansas City Federal Reserve Bank observed a slower pace of growth in manufacturing activity in its region in March. The composite index fell from 13 in February to 9 in March.

Activity remains below its level from one year ago, when the composite index was 25. Despite the easing of growth, this figure suggests that manufacturers have expanded for three consecutive months, or every month since August 2009 except for December 2011.

Other components of current activity were mixed. The index for production dropped from 20 to 13 and was probably responsible for the reduced sentiment in the larger figure. On the other hand, other measures – such as new orders, shipments and employment improved. For instance, new orders rose from 8 to 17 for the month. Also, new orders for exports went from contracting in February to being unchanged in March – a somewhat positive development.

Pricing pressures remain elevated, but the current raw material price variable eased slightly, with the prices paid index decreasing from 36 to 33. This number suggests solid growth in energy and raw material costs, and it is clear that manufacturers anticipate prices to accelerate in the future. The expected prices paid index for six months from now jumped from 54 to 65. Much of this current reading stems from higher gasoline prices, as the Fed bank noted in its press release.

Moving forward, manufacturing in the Kansas City region should grow strongly. While many of the forward-looking measures dipped a little this month, various measures of production activity remain solid across-the-board, including new orders, shipments, employment, exports and capital spending.

Chad Moutray is chief economist, National Association of Manufacturers.

The government reported that the U.S. economy grew by 2.8 percent in the fourth quarter of 2011, with manufacturers playing an integral role. Consumers and businesses replenishing their inventories were the largest contributors of real GDP for the quarter. In many ways, this number was not a surprise: other indicators also suggested an uptick in manufacturing activity in the months of November and December. Manufacturers are cautiously optimistic about future production, and the rebound is welcome news.

Yet, the GDP numbers also bring to mind challenges that might dampen growth in the coming months. It is unlikely, for instance, that we will see the same lift from inventories in the first quarter, and consumers have dipped into their savings to increase their purchases. At some point, this level of spending might ease so that consumers might pay off some of these debts. In addition, it is clear that the government sector will be a drag on growth for the foreseeable future – of which we were reminded when the Department of Defense announced budget cuts last week. Most pressing, though, is the constant reminder of Europe’s ills and the challenges that slowing global growth might have on our exports. Fitch Ratings downgraded several European nations’ credit ratings on Friday, following the lead of Standard & Poor’s from a few weeks ago.

These worries aside, most of the recent domestic economic indicators have been positive. Durable goods orders, for example, rose 3 percent in December, with strength in nondefense capital goods. This mirrors much-improved production, employment and investment data from the Kansas City and Richmond Federal Reserve Banks (and for that matter, in most of the recent regional) surveys. The National Association of Business Economics (NABE), in its latest Industry Survey, observes these improvements, with more economists upgrading their assessments for growth this year. Sixty-five percent of respondents to the NABE survey expect for real GDP to grow at least by 2 percent in 2012. Similarly, the Chicago Federal Reserve Bank’s National Activity Index indicates that the risk of a recession seems to be lessening.

These growth estimates are in line with those from the Federal Reserve Board, which estimates real GDP growing between 2.2 and 2.7 percent this year. The Fed also expects the unemployment rate to remain elevated, improving slowly to a range of 8.2 to 8.5 percent in 2012 and to 6.7 to 7.6 percent by 2014. The Federal Open Market Committee, even as it cites improvements in the domestic economy, remains worried about high unemployment, a still-weak housing market and uncertainties related to European sovereign debt. It stated last week that it now plans to keep interest rates at “exceptionally low” levels through late 2014 – an extension from its earlier intentions of doing so through mid-2013. With these moves, the Fed hopes that lower long-term rates spur more borrowing, both by homeowners and businesses.

This week, we will receive more data about production and employment, which will hopefully show continued growth in manufacturing in January. The Institute for Supply Management’s well-cited index of manufacturing activity will come out on Wednesday, and it is expected to be somewhat higher. On Thursday, new productivity data will be released, with manufacturing output per worker expected to continue to show strong growth. Finally, the Bureau of Labor Statistics will unveil new employment data on Friday, which should show increased hiring among manufacturers in conjunction with recently increased production.

Chad Moutray is chief economist, National Association of Manufacturers.