Kansas City Fed Reports Slower Pace of Manufacturing Growth

Manufacturing activity grew at a slower pace in the Tenth District in October, with the month-over-month composite index decreasing to 11 from 14 in September. Meanwhile, expectations for future activity rose from 19 to 22. The slowdown reflected softer activity among both durable and nondurable goods manufacturers. All indices except those for backlogs of orders and new export orders were positive in October. The Tenth Federal Reserve District encompasses the western third of Missouri; all of Kansas, Colorado, Nebraska, Oklahoma and Wyoming; and the northern half of New Mexico.

The production index declined from 20 to 16, and the shipments index stepped down from 21 to 18. Meanwhile, the new orders index fell from 24 to 3, while the employment index edged up from 0 to 1. The backlog of orders index turned negative, moving down from 13 to -5. At the same time, the pace of growth for prices paid strengthened, while the pace of growth for prices received weakened, moving from 68 to 70 and from 37 to 26, respectively. Looking ahead, the indices for expected prices paid and prices received both weakened, decreasing to 73 and 53, respectively.

In October, survey respondents were asked special questions about their ability to pass through prices and customer sensitivity to price changes. Over one-third of firms (35%) reported they are able to pass through up to 20% of their higher costs, while 7% can pass through 21% to 40%, 16% can pass through 41% to 60%, 11% can pass through 61% to 80%, 13% can pass through 81% to 100% and 1% can pass through more than 100%. When asked about customer sensitivity to price changes, a majority (53%) reported their customers are more sensitive, 41% of customers are about the same and 6% reported their customers are less sensitive than six months ago.