Central U.S. Factory Activity Remained Steady In February

After declining for four months, factory activity in the central United States stabilized in February, but there were indications that the industry was still struggling with declining demand and reduced production levels as interest rates rose.

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The Tenth District manufacturing survey's composite index increased to zero in February from minus one in January, according to the Federal Reserve Bank of Kansas City, exceeding the minus two average estimate of analysts surveyed by Trade Algo.

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The indicator tracks the level of manufacturing activity in the western part of Missouri, the entire state of Kansas, as well as in Colorado, Nebraska, Oklahoma, and Wyoming, as well as the northern half of New Mexico. An index value of 0 indicates that activity was constant throughout the month.

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The Kansas City Fed reported that in February, nondurable goods plants, particularly those producing plastics, chemicals, and food, experienced decreased activity.

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The survey's indexes remained largely negative in February, showing that the weakness that has been present in recent months continued.

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The production index dropped from minus 4 to minus 9, indicating a larger loss in output than in the previous month.

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The new orders index increased from minus 8 to minus 6, indicating that orders are still declining, albeit more slowly than in January. The cargo index quickly decreased from 1 to minus 13, dropping precipitously.

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One of the survey's participants stated that "business activity is exhibiting some symptoms of softening."

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The employment index rose from 4 to 11, indicating that businesses expanded hiring despite weaker output and demand. According to the survey's remarks, a lot of businesses reported having trouble finding and keeping talent.

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According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, "Firms predicted steady increase in their average number of employees to continue in 2023."

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The statistics showed that there was still inflation pressure at the plant gates. The index of raw material prices paid climbed from 20 to 26 while the index of completed goods prices received increased from 16 to 17. Both indices indicate a faster rate of price growth.

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When evaluating the immediate future, businesses tended to be overly optimistic. The Kansas City Fed reported that the number of new orders and capital expenditures indices moved into negative territory, which caused the future composite index, which measures the outlook over the next six months, to decline from 3 in January to 1 in February.