Kansas City Federal Reserve Bank Archives - Shopfloor

Kansas City Manufacturing Activity Continues to Contract

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The Kansas City Federal Reserve Bank said that manufacturing activity continues to contract, with its monthly composite index in negative territory for the third straight month. The composite index in December was -2, a slight improvement from the -4 and -6 readings of the previous two months. Pushing this figure lower has been reduced sales in the district, with the index of new orders declining in seven of the past nine months. Much of that decline stemmed from fewer exports, which have been down for seven consecutive months.

This pullback in activity was seen in a number of areas, including production, shipments, and employment. The sample comments show that worries about the fiscal cliff are on the minds of the business leaders in the Kansas City region. As one individual wrote, “Lack of clarity is discouraging. We cannot anticipate the effects of taxes, insurance, and other fiscal policy so we need to conserve cash.” Indeed, many of the commenters said that uncertainty was causing them to lower their outlook and reduce hiring plans.

Looking ahead, though, manufacturers continue to be positive about increased production, sales, and capital spending. The pace of new orders over the course of the next 6 months picked up a little, showing a degree of cautious optimism even among the worries about the fiscal cliff. With that said, it is also clear that employment growth will be weak at best, with hiring turning negative and the average workweek also lower. Pricing pressures are also anticipated to accelerate.

Nonetheless, this is another report showing weaknesses in the manufacturing sector, with anxieties about the global and U.S. economies first-and-foremost in business leaders’ minds.

Chad Moutray is chief economist, National Association of Manufacturers.

Slow Growth Observed in Kansas City, with Falling New Orders and Shipments

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The Kansas City Federal Reserve Bank provided some mixed news on the state of manufacturing in its region. On the one hand, the composite index in its monthly manufacturing survey has been positive each month so far in 2012, with mostly slow growth being observed. The index rose from 3 in June to 5 in July. Its high for the year was 13 in February, suggesting an easing in the pace of growth since then.

Yet, some of the components reflect the struggles seen in other regions. For instance, new orders and shipments have contracted for the second month in a row. Some of this was due to slower worldwide growth as reflected in reduced exports. The index for new export orders dropped from -7 to -13. Pricing pressures, after declining in the past two months, began to rise in July. Employers, though, have continued to add workers even as slower activity has reduced the average workweek for existing employees.

Even with sluggish growth this month, manufacturers remain cautiously optimistic about the next six months. Various measures of forward-looking manufacturing activity suggest that businesses anticipate increased production, employment, and capital investments in the second half of this year. The level of positivity is lower than it was two months ago, though. Prices are also expected to go up, even as they have eased recently.

Chad Moutray is chief economist, National Association of Manufacturers.