Kansas City Fed Index Slips, but Expectations Are Positive

The month-over-month production index slipped to -17, its lowest reading since March 2009. Shipments and new orders fell significantly. Order backlog and employment indexes rose a bit to remain slightly above zero. Inventory indexes also rose slightly month over month. Storms and flooding caused some of the lost production and shipments, leading the bank’s economists to see the manufacturing economy picking up in the months ahead.

Compared with June of 2012, every subindex reading rose, even if only slightly. The composite index rose from a reading of zero to 3.

A few interesting comments from survey respondents:

• We are automating production and minimizing hiring due to increased costs related to employment.
• Business continues to be slow. No improvement in sight.
• The financial impact of increased health care costs on our employees will cause significant stress and will put pressure on our company to absorb more of the costs, which would need to be passed on to customers.

The burst of manufacturing hiring that was being discussed a year or so ago has ended as U.S. industries increase automation. Robots and CNC machines do not need health insurance.