The Kansas City Federal Reserve Bank said that manufacturing activity continued to decline in May, contracting for the 15th straight month. The Fed district continued to grapple with weaknesses in the agricultural and energy markets, with the strong dollar also challenging international demand. New orders (down from -2 to -3), production (down from -8 to -11), shipments (unchanged at -6), exports (down from -4 to -8), employment (down from -12 to -13) and the average employee workweek (down from -9 to -15) were all solidly in negative territory once again. Interestingly, respondents to this month’s survey were broken down into equally-divided groups, with one-third experiencing higher sales, one-third seeing reduced sales and the remaining one-third reporting no change in May.
Meanwhile, the forward-looking data suggest that manufacturers in the Kansas City Fed region are marginally positive about the next six months. The future-oriented composite index dropped from 10 to 4 but remained positive for the second straight month. The pace of growth for new orders (down from 20 to 15) and production (down from 25 to 15) remained decent moving forward, albeit with some easing in this release. At least 35 percent of those completing the survey anticipate demand and output to improve in the second half of this year, with no more than 24 percent seeing declines. On the other hand, exports (down from 1 to -3), hiring (down from 8 to -4), capital spending (up from -6 to -3) were each expected to decline over the next six months. This will likely mean that, even with some optimism for better activity ahead, business leaders will remain cautious.