Research >> Economics
Kansas City Fed Manufacturing Activity grew at a strong pace in February 2022
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Tenth District manufacturing activity grew at a strong pace, and expectations for future activity increased. The monthly index of raw materials prices expanded at a steady pace in February and continued to increase compared to a year ago. Finished goods price indexes eased slightly from a month ago, but were above year-ago levels for most firms. Expectations for future raw materials and finished goods prices increased further.
The month-over-month composite index was 29 in February, up from 24 in January, and 22 in December. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. Increased activity was driven by growth in machinery manufacturing, plastics, fabricated metal products, and especially transportation equipment. On the other hand, beverage manufacturing, computer and electrical equipment, textiles, and petroleum manufacturing declined. Month-over-month indexes remained positive in February, indicating expansion. Indexes for production, shipments, new orders, employment, and new orders for exports increased at a faster rate in February. However, the pace of growth for order backlog and supplier delivery time moved down. Materials and finished goods inventories expanded modestly. Year-over-year factory indexes continued to rise at a steady pace, with a composite index of 50 for the fifth month in a row. Production, shipments, and employment indexes increased further from a year ago while growth in materials inventories eased slightly. The future composite index was 38 in February, edging higher from 37 in January as most future indexes increased. More firms expected increases in production, shipments, and new orders.
Special Questions
This month contacts were asked special questions about business costs and how much of their costs care passed through in the form of higher prices. In February, 96% of firms reported higher costs from wages and 84% of firms reported higher costs from non-wage benefits (Chart 2). A significant share of firms also reported higher financing costs and real estate expenses (e.g. rent, maintenance, and construction) though many firms also reported no change in those costs. Nearly all firms reported facing higher costs of some sort. 29% of firms indicated the ability to pass through 80-100% of cost increases to customers in the form of higher prices (Chart 3). However, 35% of firms reported they could only pass through 20% or less of cost increases (Chart 3). A number of firms commented that the high pace of increasing prices has made it difficult to pass through cost increases.
Posted: February 24, 2022 Thursday 11:00 AM