Thursday, January 24, 2019

Kansas City Fed: Regional Manufacturing Activity "Continued to Grow Modestly" in January, Negative Impact from Shutdown

by Bill McBride on 1/24/2019 11:00:00 AM

From the Kansas City Fed: Tenth District Manufacturing Activity Continued to Grow Modestly

The Federal Reserve Bank of Kansas City released the January Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that Tenth District manufacturing activity continued to grow modestly, and expectations for future growth remained solid.

“Regional factories had another month of sluggish growth in January,” said Wilkerson. “About one-sixth of the firms in the survey said the partial government shutdown had negatively affected their business.”
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The month-over-month composite index was 5 in January, similar to 6 in December, and lower than 17 in November. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. The slow and steady increase in factory activity was driven by durable goods producers, particularly wood products, fabricated metals, electrical equipment and appliances, and furniture manufacturing. Month-over-month indexes were somewhat mixed. The production index jumped back into positive territory, while the order backlog index turned negative for the first time since June 2017. Most year-over-year factory indexes eased from the previous month, and the composite index decreased from 38 to 31. Future factory activity expectations remained solid. The future composite index eased slightly from 22 to 18, while the future production index increased.

This month contacts were asked special questions about how the partial federal government shutdown has affected their business, and how credit conditions have changed over the past year. Nearly 17 percent of manufacturing contacts reported negative effects from the federal government shutdown on their business. Of the firms that reported negative effects from the shutdown, most noted permit delays or trade disruptions due to federal agencies being closed. Over the past year, more than 13 percent of firms reported that access to credit had increased while only seven percent of firms said access had decreased (Chart 4). However, 54 percent of contacts reported that the cost of credit increased over the past year.
emphasis added
So far, most of the regional surveys have indicated slower growth in January than in December (and December was the weakest month for the ISM index in over 2 years).