Manufacturing activity rebounded in the Kansas City Federal Reserve Bank’s district in September, expanding after two months of declines. The composite index of general business conditions increased from -4 in August to 6 in September, its fastest pace of growth since December 2014. Indeed, there were rather strong gains seen for new orders (up from -7 to 12), production (up from -7 to 15) and shipments (up from -4 to 16) to support the improved sentiment seen in this survey’s headline number. To be fair, though, the sector also continues to have a number of challenges. Most notably, that includes exports (up from -10 to -4), which contracted for the eighth consecutive month. Manufacturers in the Kansas City region – not unlike their peers in other districts – have had to grapple with a strong U.S. dollar and weaknesses abroad, both of which have dampened international demand.
The labor market data were mixed. On the one hand, hiring activity (up from -10 to -3) remains soft, even with some easing in the rate of decline in September. The index for the number of employees has been negative now for 21 straight months. At the same time, employers appear to be expanding hours worked (up from 4 to 5), with that measure positive for the fourth consecutive report. Sample comments tended to highlight challenges with attracting new talent, highlighting the skills gap seen in the sector.
Meanwhile, manufacturers continue to be somewhat upbeat about the next six months. The forward-looking composite index edged down from 11 to 10, but it has now been positive each month since April. At least 40 percent of respondents expect sales and output to grow moving forward, which is somewhat promising. Yet, those completing the survey were also less hopeful for hiring, capital spending and export growth over the next six months, showing how cautious business leaders are right now, with expected growth remaining negative.