Kansas City Fed: Factory Activity in American Heartland Slumps as New Orders Fall to Lowest Since May 2020

Factory activity in the central U.S. region slowed considerably in August as new orders fell to their lowest level since the early months of the pandemic, the Federal Reserve Bank of Kansas City said Thursday.

The Tenth District manufacturing survey’s composite index dropped to 3 in August from 13 in July and 12 in June.  The indicator suggests factory activity barely expanded as a value greater than zero signals that activity expanded over the month.

“Overall, activity slowed considerably from the past few months,” said Chad Wilkerson, vice president and economist at the Kansas City Fed. “However, expectations are still positive and price indexes reached their lowest level in over a year.”

The new orders index slumped to minus 16 from minus 2 a month earlier. This is the worst level since May of 2020, when much of the economy was reeling from anti-Covid lockdowns.

The indexes of shipments, backlogs of orders, and production both turned sharply negative. Inventories of materials declined while remaining in positive territory.

The employment indexes remained “moderately” positive, the Kansas City Fed said. The index of finished goods inventory increased slightly, although that could reflect sagging customer demand rather than a decision to build up inventories.

The future composite index was 10 in August, a moderate decline from 26 in July. The Kansas City Fed said that nearly all future indexes decreased from the previous month, with order backlog and inventory indexes falling into negative territory.

The prices received index inched down while the prices paid for materials inched up. Both remain at high levels.

The survey measures the manufacturing activity of businesses located in the western third of Missouri, all of Kansas, Colorado, Nebraska, Oklahoma, and Wyoming.

This week the Richmond Fed said its survey of manufacturers showed activity fell back into contraction in August. The New York Fed said last week that its Empire State survey had plunged deep into negative territory, falling 42.4 points to minus 31.3.  The Federal Reserve Bank of Philadelphia, on the other other hand, said its index of general business conditions in the region rose into positive territory after two negative months.