Expansion of Manufacturing Activity in Central U.S. Quickens in July Despite Surge in Cases

Manufacturing activity in the central part of the U.S. slightly accelerated its expansion pace in July despite the rise in Covid-19 infections across the region, data from a monthly survey from the Federal Reserve Bank of Kansas City showed Thursday.

The Tenth District Manufacturing Survey's composite index stood at 3 in July, slightly up from June's 1 reading. This is the third consecutive month of improvement for the indicator and the second straight month which signals expansion of activity, albeit at a slow pace.

The reading is below expectations from economists polled by FactSet, who forecasted the indicator to be at 5.

The index, which takes into account factors like production and employment, covers the western third of Missouri, all of Kansas, Colorado, Nebraska, Oklahoma and Wyoming, and the northern half of New Mexico. Values greater than zero generally suggest expansion, while values below zero indicate contraction.

Expansion of Manufacturing Activity in Central U.S. Quickens in July Despite Surge in Cases

Despite the sharp improvements registered from May, the indicator remained in July slightly below pre-pandemic levels, as in February the composite index stood at 5.

"Regional factory activity continued to expand slightly in July, but was still well below year-ago levels," Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, said in prepared remarks.

The survey was carried out from July 15 to 20, when some of the states in the region registered a spike in Covid-19 infections.

The improvement in activity was driven by non-durable goods plants, while activity in most durable goods factories also improved except for continued decreases in fabricated metals and computer and electronics plants, the Kansas City Fed said.

The composite index is an average of the production, new orders, employment, supplier delivery time and raw materials inventory indexes.

Federal Reserve Bank of Kansas CityThe production index rose to 7 from June's 2 reading, signalling output is expanding, data showed.
New orders index increased to 9 and supplier delivery time remained positive. The employment index swung to expansion territory, while the raw materials inventory index fell to minus 8.

Manufacturing firms were moderately optimistic about the near-term outlook. The future composite index, which relates to the outlook in the next six months, edged up to 14 in July from 9 in June.
"Of those surveyed, 44% of firms said that their business costs have increased in the past six months, but expectations for future activity and employment continued to improve," Mr. Wilkerson said.
"Business recovery is extremely slow ... Will have to cut staff significantly unless business activity rebounds soon or additional government employment incentives are implemented," said one of the companies polled.
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