The Reopening: Middle American Manufacturing Growth Soars to Record High

Factory worker and engineer doing inspection.
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Manufacturing activity in a large section of Middle America unexpectedly surged in April, data from a survey from the Federal Reserve Bank of Kansas City showed Thursday, the latest indication that the American economy is emerging from the pandemic on a much stronger footing than was forecast.

The Kansas City Fed’s manufacturing survey’s composite index jumped to 31, up from an already elevated 26 in March. That is the best reading in the survey’s history.

Economists had forecast the index to hold the March level, with predictions ranging from 19 to 28.

The survey covers the Fed’s 10th District, wihich includes the western third of Missouri, all of Kansas, Colorado, Nebraska, Oklahoma and Wyoming, and the northern half of New Mexico.

All scores over zero on the index indicate growth. April is the eleventh consecutive month in which the index remains in growth territory and the second month in which the index surged much higher than expected.

Last week, the New York Fed’s Empire State survey and the Philly Fed’s survey also showed manufacturing in those regions booming.

“Regional factories reported historic growth and very positive expectations in April,” Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, said.

April’s growth came from much higher activity in durable goods factories, especially for primary and fabricated metals, and transportation equipment makers, the report said.

The sub-indexes for production and employment reached record high levels in April, with production jumping to 40 from 23 in March. Shipments, employee workweek, order backlog, and new orders for exports also accelerated.

There were some signs of inflation in the survey, as well as evidence that enhanced unemployment benefits are hindering recovery. Around 70 percent of firms indicated selling prices are higher compared to pre-pandemic levels, mostly due to increasing materials prices. Twenty-eight percent said the inability to pass through price increases was a primary risk facing their business. Sixty percent said they finding qualified workers and supply-chain issues were their biggest risks.

“It is very difficult to handle the increased business with supply chain issues across all materials and finding anyone who wants to work. The federal government has incentivized people to stay home and not be productive,” one business told the Kansas City Fed.

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