Two manufacturing surveys released this morning show that even as we have seen some signs of progress in a number of economic indicators, there continue to be some weaknesses in the Midwest in the latest data.
First, the Kansas City Federal Reserve Bank said that manufacturing activity in its District contracted at a slower rate in March, but it has now contracted for six straight months. The composite index improved from -10 in February to -5 in March. After sharp declines in new orders and shipments the month before, both figures were unchanged this month. That helped to slow the rate of decline in overall sentiment.
Yet, it is clear that manufacturers in this region tend to be one of the more pessimistic of any of the other Fed regional surveys regarding the current economic environment. Many of the key indicators were negative, with some of them strongly so. For instance, the index for the number of employees swung from +2 (slight growth) to -15 (strong decline). The employment data have been negative four of the past six months, suggesting a high degree of skittishness toward hiring in the Fed District. Other contracting figures included the orders backlog, the average employee workweek, export orders, and raw material inventories.
The comments usually provide some context to the index data, and they reflect the negative perceptions seen in the numbers. Respondents noted some persistent macroeconomic uncertainties, as well as higher costs. Healthcare was mentioned in two of them, with one saying, “Until the final rules of our cost for healthcare are known, we are not hiring.” Another individual added, “Our customers are preparing for the increased healthcare costs and higher petroleum costs.” The issue of how manufacturers will implement the Affordable Care Act has certainly risen to the forefront for many businesses, with rising healthcare costs the top concern in the latest NAM/IndustryWeek Survey of Manufacturers. (continue reading…)