Manufacturing activity in the US Midwest region has experienced a more pronounced downturn than anticipated, plunging into a deeper contraction this month. According to the latest report from the Federal Reserve Bank of Kansas City, the composite manufacturing index fell to minus 8 in September, a notable drop from minus 3 in August.
This decline was considerably worse than the consensus expectation of a minus 5 as indicated by a Bloomberg survey. The downturn has been primarily attributed to the performance of durable goods. "Regional factory activity fell moderately this month," commented Chad Wilkerson, Senior Vice President of the Kansas City Fed.
He noted that the year-over-year composite index has reached its lowest point since September 2020, with significant reductions observed in both production and new orders. The production index reversed its position dramatically, plunging to minus 18 from a positive 6 month over month. New orders similarly dipped, decreasing two points to minus 14 in September.
In terms of shipments, there was a decline to minus 12 from minus 1. Employment in the region also saw a downturn, with the index worsening to minus 11 in September from minus 7 in August, as per data from the Kansas City Federal Reserve. In terms of raw material prices, the index revealed a cooling effect, dropping to 13 from 18 month to month.
Conversely, the index that charted selling prices turned negative, dropping to minus 5 from 6 in August. This decline suggests a slight decrease in the prices of finished products, according to the Fed branch. Looking ahead six months, the seasonally adjusted composite index showed a slight uptick to 9 this month from 8 in August.
However, both future production and shipment indexes experienced decreases of one point, landing at 19 and 10, respectively. The forward-looking metric for orders, meanwhile, remained stable at 12. Firms have reported expectations for input price growth to ease in the upcoming six months, although they anticipate a rise in selling prices.
The future employment metric has also shown a mild increase, moving up one point to 18, according to data from the regional Federal Reserve. Earlier in September, a separate report from the Federal Reserve Bank of New York indicated that manufacturing activity in its area had transitioned into growth territory for the first time since November.
In contrast, the Philadelphia Fed's headline measure of activity saw a rebound that surpassed expectations. However, in the Richmond Fed's region, manufacturing activity unexpectedly fell deeper into contraction territory..