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…)

Manufacturers in its region reported slower growth in activity in June, according to the Kansas City Federal Reserve Bank. The composite index of business activity fell from 9 in May to 3 in June. (It has gone 9-3-9-3 over the past four months.) The largest drag on growth for the month was new orders, which dipped into contraction territory, moving from 10 to -7. This includes new export orders, and overall, it is a sign of weakness, with possible implications for production in future months.

With that said, current production and shipments data continue to expand, albeit at a slower rate. The production index, for instance, fell from 17 to 12. Employment growth also eased in June, and the average workweek for workers declined. Pricing pressures also lessened.

Expectations for six months from now remain upbeat, but the level of optimism has diminished. The forward-looking composite index dropped from 17 to 8, and the production index fell from 40 to 22. This suggests that manufacturers are cautiously optimistic about future activity, but recent events have lessened this to a certain degree. Interestingly, even as employment levels are expected to increase, respondents also said that the average workweek should decrease a little moving ahead.

According to Chad Wilkerson, vice president and economist at the Kansas City Fed, “Many firms noted concerns about economic conditions in Europe, but only a few had experienced sizeable direct negative impacts to date, and Tenth District factories as a whole still expect moderate growth heading forward.”

Chad Moutray is chief economist, National Association of Manufacturers.

The Federal Reserve Bank of Kansas City said that manufacturing activity bounced back in May, after slowing in March and April. The composite index had fallen from 13 in February to 9 and 3 in March and April, and it rose to 9 in May.

This is a positive sign, as it suggests a renewal in production and new orders after some spring weaknesses. The index for new orders, for instance, shifted from a contraction (-8) to modest growth (10) for the month.  New export orders picked up slightly.

With that said, employment has not yet picked up to reflect the rebound in manufacturing activity in the other figures. The pace of job growth slowed from 12 to 8, with the average workweek still contracting. The workweek index increased from -10 to -2.

The more-optimistic current sentiment also carried through to expectations about the next six months. The forward-looking composite index rose from 12 to 17, with a number of key activity measures showing strong growth predicted for the second half of this year. As an example, expected shipments jumped from 22 to 40, mirroring numbers for production, new orders, employment and capital expenditures. Pricing pressures, which have eased over the past few months, are expected to pick up moving forward.

Overall, it appears that the regional surveys of manufacturing activity are split, with some reporting improvements and others noting weaknesses in the current environment. Kansas City appears to be rebounding like New York, while Philadelphia and Richmond have observed a slowing of growth. Chicago has seen flat growth in its most recent figure. Next week, we will get a sense of what is happening in Texas. 

Chad Moutray is chief economist, National Association of Manufacturers.

Manufacturers were more optimistic in February, according to the latest survey from the Kansas City Federal Reserve Bank. The composite index of current business activity was up from 7 in January to 13 in February, its highest level since June of last year. Like many other regional surveys, it shows a renewed uptick in production and employment. Despite the higher overall figure, the pace of growth for new orders and shipments eased somewhat, and the average employee workweek contracted.

Looking forward six months, respondents were mostly upbeat. The composite index for future expectations rose from 12 to 20, and most of the production variables suggested greater activity in the next six months. This included higher levels of production, new orders, shipments and employment. The exceptions were slightly lower figures for new export orders and capital expenditures; although both are anticipated to continue expanding. Pricing pressures are also expected to intensify, with a majority suggesting higher raw material costs ahead.

Chad Moutray is chief economist, National Association of Manufacturers.

The U.S. economy continues to expand, with last week’s manufacturing and housing indicators showing progress. While the top-line industrial production figure was unchanged, manufacturing production rose a healthy 0.7 percent in January, led by strong growth in the durable goods sectors. Manufacturers are producing 4.7 percent more than one year ago, and capacity utilization rates also are up significantly. Similar findings were observed in the New York and Philadelphia Federal Reserve Bank regions, which showed expanding activity and mostly positive trends moving forward.

News from the housing market was also more upbeat. Housing starts rose to nearly 699,000 new units in January, and with some revisions, new residential construction topped 700,000 in November – the highest level since October 2008. These figures remain well below the levels of a few years ago, yet it is nice to see the trend line moving higher. Data from the National Association of Home Builders echo these findings, with its Housing Market Index up from 14 in September to 29 in January. Still, significant financial obstacles continue to challenge many would-be homebuyers and hold back growth.

Despite continued anxieties, the American consumer has begun spending again, with retail sales up 0.4 percent in January. This trend can also be seen in the pricing data. Higher traffic in restaurants and hotels, for instance, has helped to increase these costs. Both consumer and producer prices rose in January and were lifted by larger food and energy expenses. Yet, a mild winter has helped to mitigate the run-up in gasoline prices, with home energy costs lower. Inflationary pressures remain modest, despite the fact that core inflation remains above 2 percent.

This week, only a handful of economic reports will be released. In addition to some housing data, we will learn about manufacturing activity in the Kansas City Federal Reserve Bank region, and the Chicago Fed will likely highlight continued progress in the economy with its National Activity Index.

Chad Moutray is chief economist, National Association of Manufacturers.

The Kansas City Federal Reserve reported that manufacturing activity in its region rose slightly in September, with its composite index up to 6 from 3 in August. This continues the trend, mentioned in a posting from earlier this week, of stronger activity in the Midwest than in the Mid-Atlantic region. 

The good news in this survey is some modest improvements in production, shipments, new orders and employment. Indices for production and shipments, for instance, both switched from -2 in August (a slight contraction) to +3 in September (a slight expansion). Reflecting this increased activity, the index for the average employee workweek also rose, from -5 to +6. Pricing pressures remain elevated, with more of the respondents able to pass along some of their cost increases.

Looking ahead to the next six months, manufacturers in the Kansas City region remain positive. The composite index, albeit less so than in previous months. Measures of production, shipments, new orders and employment are about the same as they were in August or slightly lower. Despite the degree of optimism, the average employee workweek is expected to contract, the pace of capital expenditures and exports are projected to slow somewhat and those taking the survey expect fewer inventories.

As a whole, the accompanying chart shows that manufacturing activity remains week. By averaging together the composite indices from the Dallas, Kansas City, New York, Philadelphia and Richmond regional Federal Reserve Bank surveys, we can see a definite trend emerging. (continue reading…)