The Kansas City Federal Reserve Bank said that manufacturing activity expanded for the eighth straight month and continued to expand at a modest pace in July. With that said, the composite index of general business conditions edged down from 11 in June to 10 in July. The underlying data were mixed. On the positive side, new orders (up from 4 to 10) grew at a faster pace for the month to its best reading since March, and hiring (unchanged at 15) remained strong. Yet, other measures slowed, including production (down from 23 to 4) and the average workweek (down from 7 to 1). Nonetheless, shipments (down from 23 to -2) slipped into contraction for the first time in one year, and exports (down from 3 to -2) dropped for only the second time this year. The sample comments tended to mirror these differing views, ranging from signs of optimism in terms of sales to other respondents citing caution on capital spending and lingering challenges in identifying quality labor candidates.
Meanwhile, manufacturers continued to be optimistic about the next six months, albeit with some easing from the prior survey. The forward-looking composite index declined from 25 to 19. At least 43 percent of those completing the survey expect sales, production and shipments to be higher moving forward, with 36 percent and 29 percent seeing more hiring and capital spending, respectively. At the same time, business leaders in the Kansas City Fed’s district also see export growth not changing by much over the coming months, which, if true, could limit growth in overall demand.