U.S. Manufacturing Activity Surges in September
Factory activity in the central United States saw significant growth in September, according to a recent survey from the Federal Reserve Bank of Kansas City published on Thursday. This report adds to a series of indications suggesting that the economy is picking up steam as we move into the fourth quarter.
The Kansas City Fed’s composite index for manufacturing rose to 14 in September, up from 10 in August and 9 in July. Interestingly, economists had actually predicted the index would drop to 8. This uptick marks the highest reading in over a year and represents the fourth consecutive month of solid improvement, with numbers above zero signaling expansion.
The surge in September was largely driven by demand. The new-orders index shot up to 24 from 16, while the order-backlog index increased from 4 to 13. Production levels grew to 20, and shipments reached 21. Every component measured in the month-over-month survey recorded growth.
Cortney Cowley, who serves as an assistant vice president at the Kansas City Fed, mentioned, “District manufacturing activity continued to rise.” She noted that growth was widespread among producers of both durable and nondurable goods, with notable contributions from the plastics, rubber, and furniture industries.
This Kansas City report followed a nationwide survey that indicated U.S. business activity is expanding at its fastest rate in years. The S&P Global US PMI Composite Output Index jumped from 56.0 in August to 58.4 in September, marking the strongest growth since July 2021. Furthermore, manufacturing saw an increase to 57.0 from 53.9, while the services sector improved to 58.7, based on the early estimates.
“US business continues to boom,” remarked Chris Williamson, chief business economist at S&P Global Market Intelligence. He pointed out that historical trends suggest this data could indicate an annual growth rate around 5 percent, with a projected 4 percent increase for the third quarter overall.
In the S&P Global manufacturing survey, production growth rebounded after a slower three-month period, reaching its fastest rate since April 2022, alongside a notable acceleration in new orders—the strongest in nearly four and a half years.
Manufacturers in the Kansas City Fed’s region—which includes states like Colorado, Kansas, and Nebraska—reported lengthening workweeks, which bodes well for workers’ earnings. The index for the average workweek dramatically increased to 13 from 1. Delays in supplier deliveries also indicated robust demand, and inventories of finished goods went up.
However, hiring didn’t keep pace with these positive trends. The employment index remained at zero for the second month in a row, likely reflecting a tight labor market where unemployment is low, and jobless claims have fallen to their lowest levels since 1969. Some business leaders expressed a preference for automation over expanding their workforce. One respondent noted a projected increase in new business of over 30 percent for the coming year, stating, “We will try to automate as much as possible to minimize the need for additional headcount.”
Despite this, the overall outlook among factory managers in the region remained optimistic. The Kansas City Fed’s index measuring expected activity for the next six months was 19, only slightly down from 20 in August. Projections for production held steady at 36, and expected new orders were at 31. Compared to the previous year, the composite index was at 15, a slight decrease from 16 in August.
“Things are starting to look very good for us for the 4th quarter in terms of new orders and shipped orders,” remarked one manufacturer.
The survey also queried companies about how significant a sales decline would be necessary for them to consider staff reductions. The majority of firms, 26 percent, indicated that a drop of 5 to 10 percent would prompt layoffs, while only 11 percent already had plans for cuts.
This Kansas City Fed survey was conducted from September 16 to 21 and included responses from 101 participants.
