Research >> Economics
Kansas City Fed Manufacturing Activity up somewhat in May
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Tenth District manufacturing activity continued to decline, but not as sharply compared to last month’s record low. Expectations for future activity rose, but remained slightly negative. Month-over-month price indexes remained negative again in May. Moving forward, District firms expected prices for finished goods to decline and prices for raw materials to increase in the next six months.
Factory Activity Continued to Decline in May
The month-over-month composite index was -19 in May, up somewhat from the record low of -30 in April, and similar to -17 in March. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. The decrease in district manufacturing activity was driven by further drops at durable goods factories, especially primary metals, fabricated metals, and transportation plants. On the other hand, activity at non-durable goods plants remained more solid. All month-over-month indexes remained negative in May. Year-over-year factory indexes fell further in May, and the composite index declined from -30 to -35. The future composite index increased from April, but remained slightly negative at -2.
Special Questions
This month contacts were asked special questions about their expectations for when business activity will return to pre-COVID-19 levels and about current economic conditions as a result of COVID-19. Around 32 percent of factory contacts expect business activity to return to levels similar to activity before COVID-19 within 6-12 months once restrictions are lifted, while 23 percent indicated it would take more than a year for business activity levels to resume normalcy (Chart 2). However, 20 percent of manufacturing contacts, including some machinery and chemical plants, reported that business activity is currently at or above pre-pandemic levels. If current revenues were to continue, 72 percent of firms indicated their firms could survive for more than a year, while 28 percent reported their firm could survive only a fraction of that time if current revenue levels persisted. Over 61 percent of firms reported losses in productivity as a result of the COVID-19 pandemic and 52 percent of survey contacts experienced ongoing supply chain disruptions (Chart 3). Additionally, 25 percent of firms reported labor shortages due to the COVID-19 pandemic.
Posted: May 28, 2020 Thursday 11:00 AM