The Kansas City Federal Reserve Bank said that manufacturing activity slowed in January, beginning the new year on a softer note. The composite index of general business conditions dropped from 8 in December to 3 in January, its lowest level in five months. Underlying this figure, new orders (down from 14 to -8), production (down from 7 to -2), shipments (down from 8 to -5) and exports (down from zero to -7) declined for the month, and hiring (down from 8 to zero) stagnated. On the positive side, it was the 13th straight month with expanding levels of sentiment, and manufacturers remain mostly optimistic about the coming months.
The data on the current economic environment reflect a number of challenges, as observed in the sample comments. One respondent cited the strengthening U.S. dollar and alluded to the West Coast ports slowdown, writing, “The strong dollar is really hurting our ability to compete with our European competitors. Also, shipping delays out of Long Beach port are causing us issues with getting our product to our customers timely as well as getting product to us from China timely.” The other issue of note was falling petroleum prices, particularly as they relate to the energy supply chain. As one individual put it, “Lower oil prices have reduced our transportation costs but hurt the business prospects for some of our customers that serve the oil extraction industry.”
Yet, despite these challenges, the outlook for manufacturers in the Kansas City Fed district remained encouraging. The future-oriented composite index was unchanged at 19, a figure that suggests a relatively decent expansion moving forward. In fact, measures for new orders (up from 23 to 24), production (up from 26 to 27) and shipments (up from 33 to 35) strengthened slightly in January. While anticipated hiring (down from 30 to 24) and capital spending (down from 25 to 16) plans each eased a bit this month, the data continue to indicate healthy gains for both. In contrast, export sales (down from 8 to -2) were not expected to improve over the next six months, making it the largest downside risk moving forward in this survey.
Chad Moutray is the chief economist, National Association of Manufacturers. For news from NAM,visit www.nam.org.