Factory Activity Continued to Grow Slightly in July

Tenth District manufacturing activity continued to grow slightly after decreasing sharply in the spring, but still remained well below year-ago levels (Chart 1, Tables 1 & 2). Expectations for future activity continued to improve slightly. District firms continued to expect prices for both finished goods and raw materials to expand in the next six months.

The month-over-month composite index was 3 in July, up slightly from 1 in June and up considerably from -19 in May (Tables 1 & 2). The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. The improvement in activity was still driven by non-durable goods plants. However, activity in most durable goods factories also improved except for continued decreases in fabricated metals and computer and electronics plants. Most month-over-month indexes were positive. Production, shipments, new orders, and supplier delivery time indexes remained positive, and indexes for order backlog and employment recovered to positive levels. Only new orders for exports and inventories indexes remained negative. Most year-over-year factory indexes increased but remained negative in July. The future composite index continued to rise in July, increasing slightly from 9 to 14.

Composite Index vs. a Month Ago

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Date Composite
19-Jul -2
19-Aug -5
19-Sep -1
19-Oct -2
19-Nov -2
19-Dec -5
20-Jan -1
20-Feb 5
20-Mar -17
20-Apr -30
20-May -19
20-Jun 1
20-Jul 3

Special questions

This month contacts were asked special questions about changes in business costs and their need for physical infrastructure since managing the effects of COVID-19. 67% of contacts reported that their need for physical infrastructure had not changed in the past 6 months, and 69% anticipated that that need would not change in the medium term (1-2 years) (Chart 2). Additionally, 66% of contacts said they had utilized a work from home policy in the last 6 months, but very few said that any portion of their workforce will now permanently work from home. In terms of business costs, 42% of firms reported that their costs have increased in the past 6 months, 26% reported no change, and 21% reported decreases (Chart 3).

Selected comments

"We’ve already adjusted to the effects of the pandemic on our market/business and don’t see any future effects on our business if the government support were to diminish, unless there were unforeseen negative effects."

"Business recovery is extremely slow. Running out of improvement projects. Will have to cut staff significantly unless business activity rebounds soon, or additional government employment incentives are implemented."

"April/May were awful from a revenue point of view. The PPP plan functioned exactly as it was intended to for our small business. We were able to maintain our staff and pay them normally during a significant downturn in revenue. We are, however, having difficulty hiring now due to Federal unemployment combined with State unemployment incentivizing those currently unemployed to not work."

"PPP funding allowed working hours and head count to remain the same for the last 12 weeks."

"PPP saved us initially. It has all been utilized and a second round would be welcomed. If that doesn’t occur, further cuts will be made."

"We are busy with supplying government contracts but we don’t expect them to go to the end of the year. A lot depends on the restaurant industry and if the schools open in the fall and have a school lunch program working. A lot of unknowns yet through the rest of the year."

"Trying to compete with businesses who do not follow CDC guidelines is difficult."

"If demand decreases more, we will need additional cash (bank debt) to support business."

"Ending [PPP] programs would not harm us except to the extent that the broader economy slows. We believe more people will become available and interested in employment opportunities if the government assistance programs end."

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…