By Xavier Fontdegloria
Manufacturing activity in central U.S. cooled in May compared with the previous month, although it continued to expand at a solid clip, according to data from a survey by the Federal Reserve Bank of Kansas City released Thursday.
The Tenth District manufacturing survey’s composite index decreased to 23 in May from 25 in April, broadly in line with the 22 consensus forecast from economists polled by The Wall Street Journal.
“The pace of regional factory [activity] slowed slightly but remained strong,” said Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City.
The indicator gauges manufacturing activity of firms located in the western third of Missouri, all of Kansas, Colorado, Nebraska, Oklahoma and Wyoming, and the northern half of New Mexico. A value greater than zero signals that activity grew over the month.
The Kansas City Fed survey is at odds with other regional surveys gauging the manufacturing sector, which suggested that activity contracted or barely grew in May.
In the U.S. central region, growth in factory activity was led by durable goods plants, particularly transportation equipment, electrical equipment and furniture-related manufacturing, the report said.
The production index fell to 19 in May from 28 in April, suggesting that output expanded but at a lesser pace compared with the previous month.
Demand indicators painted a mixed picture, with the volume of shipments index decreasing to 17 from 27, and the volume of new orders index rising to 15 from 10.
The employment index increased sharply to 34 from 19, signaling a broad-based increase in hiring over the month. However, many companies reported difficulties in attracting and retaining workers.
“[We] continue to see tight labor market,” one of the respondents of the survey said. “[We] need to attract employees from other companies.”
Supply-side constraints persisted. The backlogs of orders index increased to 20 from nine, while the supplier delivery time index fell to 29 from 42.
“Firms continued to report negative impacts from higher inflation and supply shortages,” Mr. Wilkerson said. Nearly 70% of respondents reporting worse supply disruptions and shortages compared with 2021, and most expected conditions to last another six months or longer, he said.
Prices growth remained elevated, albeit eased compared with April. The index of prices paid for raw materials fell to 72 from 83, and the index of prices received for finished products decreased to 42 from 57.
Firms in the area felt less optimistic in May about the short-term business conditions. The future composite index, which gauges the outlook in the next six months, decreased to 31 from 34. Expectations for future raw materials and finished goods prices remained high, but not as much as recent historical highs, the report said.
Write to Xavier Fontdegloria at [email protected]
