Regional Fed survey reveals slip in manufacturing sector activity

Manufacturing activity slipped in August in the region that includes Oklahoma, the Federal Reserve Bank of Kansas City said Thursday.

The bank’s monthly manufacturing survey found the sector “continued to decline modestly.”

“Firms reported another slight drop in activity in August, but remained moderately optimistic about activity heading forward,” said Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City.

The monthly composite index stood at -4 in August, up from -6 in July. The composite index is an average of the production, new orders, employment, supplier delivery time and raw materials inventory indexes.

The survey said nondurable goods production continued to grow modestly, while durable goods activity was less negative, particularly for machinery and electronic equipment.

Companies surveyed said they saw slow growth and had concerns over attracting qualified employees and rising health insurance costs.

‘Seeing slow growth’

“We are seeing slow growth in the midsection of the country,” said one unnamed company in selected comments chosen by the bank. “It seems like our customers on the coast are doing better, but everyone is still dragging their feet on making any decisions on new products.”

One company was pessimistic about the broader economy and said it was concentrating on internal improvements.

“Energy is still sluggish, the dollar is still strong and basic manufacturers in the U.S. are under attack from foreign dumping, domestic competition and excessive and costly regulation,” the company said. “In response, our investments are focused on improving efficiencies, improving yield, improving quality and reducing head count.”

August’s manufacturing survey said the future composite index fell to 11 from 14, while future production, shipments and new orders indexes edged lower. But the future employment index jumped to 12 from 6, and the future capital spending index rose slightly.

“The biggest concern as we hire new employees is estimating where labor cost will go from here,” one company told the survey.

“Benefits will remain the same, but we will have to increase wages to attract quality employees,” another company said.

The manufacturing survey is a diffusion index, which measures the percentage of firms expecting increases minus the percentage of those expecting decreases.

The August survey included 94 responses from plants in Oklahoma, Colorado, Nebraska, Wyoming, Kansas, northern New Mexico and western Missouri.