Factory activity declined in August

Tenth District manufacturing activity declined in August, while expectations for future activity edged higher (Chart 1). The month-over-month price indexes for raw materials and finished products decreased, turning negative for the first time since 2016. Firms continued to expect prices to rise over the next 6 months, however.

The month-over-month composite index was -6 in August, down from -1 in July and 0 in June, and the lowest reading since March 2016 (Table 1). The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. The drop in manufacturing activity was driven by declines at both durable and nondurable plants, but especially from decreases in primary metal, electrical equipment, appliances, paper, printing, and chemical manufacturing. Most month-over-month indexes decreased in August, and the shipments and supplier delivery time indexes also turned negative. All of the year-over-year factory indexes decreased in August, and the composite index fell from 11 to -1. On the other hand, the future composite index edged higher from 9 to 11, as expectations for shipments, order backlog, employment, and new orders for exports grew slightly.

Composite Index vs. a Month Ago

Skip to data visualization table
Date Composite
18-Aug 15
18-Sep 13
18-Oct 10
18-Nov 17
18-Dec 6
19-Jan 5
19-Feb 1
19-Mar 10
19-Apr 5
19-May 4
19-Jun 0
19-Jul -1
19-Aug -6

Special questions

This month contacts were asked special questions about the impact of recent tariff announcements and their expectations regarding the duration of trade tensions. Over 55 percent of regional manufacturing contacts expect the most recent round of announcements of U.S. tariffs on Chinese goods to negatively impact their business, while less than 6 percent expect a positive impact (Chart 2). More than 37 percent of firms expect trade tensions to persist for 1-2 years, and 29 percent of firms expect trade tensions to last for 6-12 months (Chart 3). However, 13 percent of contacts expect trade tensions to subside within 6 months, while 20 percent expect trade tensions to last for more than 2 years. 

Selected comments

“Continued weakening in product sold, volume down 21% compared to last year; down 8.3% compared to last year YTD. No improvement seen for the rest of the year.”

“Sales are starting to decline across all of our major retail accounts. I am having a hard time explaining to major corporations that China is paying for the tariffs at the same time I am request a price adjustment due to tariffs.”

“Our distributor in China is now paying an additional 31% in tariffs compared to 2018. He has had to raise his prices to consumers and so our sales have dramatically slowed down.”

“We are expecting higher prices for some materials sourced from China.”

“We are seeing a slow down in activity from some of our larger customers due to the tariffs.”

“Tariffs are negatively affecting business confidence. We make capital goods. Our customers delay investments when the climate is turbulent and uncertain. In addition, tariffs negatively affect many of our input costs, such as electronics and steel.”

“Uncertainty and lack of confidence have slowed manufacturing somewhat, or at least made deeper analysis necessary.”

“We continue to advertise for line workers with no success. Still need to hire about 10 people for the peak season but are not getting any applicants. Our temp companies are having a hard time filling our request.”

“Unemployment is still at historic lows and it is difficult to find new employees. Higher wage increases will be required to retain existing employees and attract new ones.”

“We continue to see wage pressure with the shortage of labor for manufacturing. We will be raising our starting base when we start our budgeting process for 2020.”

“Based on current and predicted future business conditions, I don’t anticipate being able to offer any wage increases in 2020.”

Survey Data

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About Manufacturing Survey

Author

Chad Wilkerson

Vice President, Economist and Oklahoma City Branch Executive

Chad Wilkerson is Branch Executive of the Kansas City Fed’s Oklahoma City Branch office. In this role, he serves as the Bank’s lead officer and regional economist in Oklahoma. He…