Factory Activity Expanded Further

The month-over-month composite index was 14 in December, up from 11 in November and 13 in October (Tables 1 & 2). The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. Activity at non-durable plants declined slightly, while activity at durable goods factories expanded more. Food and beverage production dipped, but transportation equipment manufacturing increased. Month-over-month indexes were positive, indicating continued expansion. Shipments, new orders, order backlog, employment, new orders for exports, and supplier delivery time increased at a faster pace. Materials inventories rebounded while finished goods inventories declined further. Year-over-year factory indexes declined slightly in December, and the composite index dipped from -12 to -14. The future composite index was slightly lower than 21 in November but remained positive at 17 in December.

Manufacturing Composite Indexes

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Date vs. Month ago vs. Year ago
19-Dec -5 -4
20-Jan -1 -7
20-Feb 5 5
20-Mar -17 -14
20-Apr -30 -30
20-May -19 -35
20-Jun 1 -29
20-Jul 3 -22
20-Aug 14 -19
20-Sep 11 -21
20-Oct 13 -12
20-Nov 11 -12
20-Dec 14 -14

Special questions

This month contacts were asked special questions about the recent surge in COVID-19 cases and their expectations regarding capital outlays and restraints. More than three-quarters of factory contacts indicated the recent surge in COVID-19 cases has negatively affected their firm’s business (Chart 2). Many contacts noted that more employees have missed work recently after testing positive for COVID-19 or being exposed to the virus, and other contacts reported weaker demand from customers. Regarding capital outlays, 71% of firms reported investing in equipment to enhance production capacity as their primary motivation for the upcoming year, and 61% listed labor-saving technology (Chart 3). Another 35% of contacts said IT infrastructure was a primary motivator for capital outlays in the upcoming year. On the other hand, over half of firms indicated they will be reducing capital outlays for facilities for the upcoming year.

Selected comments

“New orders placed by our customers for next year are very encouraging. We are starting to see a nice rebound in sales from 2020 (down 20%+).”

“The US-imposed tariffs continue to cause price increases to the consumer.”

“We are reducing hours and costs to adjust to… the reality of lowered activity combined with typical seasonality… and believe that activity will resume in the spring.”

“The impact of COVID-19 has been devastating yet hard to measure. It affects everything at once such as supply of cattle, labor availability, demand for wholesale beef, demand for retail beef, export markets, transportation, availability of cold storage, availability of dry ice, just to name a few.”

“We're concerned about transportation -- freight costs, regulations leading to reduced capacity.”

“Our business planning assumptions are based on no changes in the current tax laws and/or regulation. Should business and personal taxes and/or regulations negatively change, then all bets are off.”

“Due to permanent restaurant/bar closures, out business may take years to fully recover from the government imposed restrictions.”

“More stimulus or less regulation/restrictions will be needed in order to avoid a major downturn.”

“We already burned through cash reserves… shutdown business-lay off employees is next step.”

“Banks are willing to lend with tighter covenants.”

“Another round of PPP would be beneficial in our industry to allow some employees on the bubble to retain their jobs.”

“Our infrastructure was adequate prior to the downturn and there is no need to make additional changes until opportunities arise.”


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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…