Summer’s economic optimism vanishes with the season in the Midwest.

By Giancarlo Salazar on August 28, 2015 • ( Leave a comment )

Summer enthusiasm in the Midwest lasted short. The season has not ended yet, as business leaders started to pose concerns in the months to come. The Tenth District Manufacturing Survey revealed that manufacturing activity declined moderately in August 2015. Not only manufacturing declined, but also optimism about future economic activity. Economic expectation in the Midwest are being tempered by the strength of the dollar versus other currencies -especially China’s- around the world, as well as oil prices. Manufacturer leaders expect no increases in most of the matters they are asked about.

According to Chad Wilkerson, vice president and economist of the Bank, “survey respondents reported that weak oil and gas activity along with a strong dollar continued to weigh on regional factories”. In addition, when manufacturers identify strong dollar as one of their economic challenges, they also relate China’s devaluation of the renminbi. Even though it is very unlikely that the present survey had captured the real effect of such monetary effect, one survey respondent stated that “I speak to many business executives who do exporting, and all seem considerably concern about the dollar strength and the devaluation of the Chinese currency”.

Manufacturer’s opinions on this type of surveys yield insights for analysts to sort out in terms of business leader’s expectations of future profits. It is widely accepted by economists that both current and future output determine heavily investment decisions. Future profits is indeed in every CEO’s reckoning of investment plans. Thereby, investment ends up driving regional economic growth. Thus, the horizon for the fall and winter of 2015 does not look promising for some of the respondents to the survey, all of which live and conduct business in the states of Wyoming, Oklahoma, Kansas, Colorado, Nebraska, the western third of Missouri, and the northern half of New Mexico.

More in detail, the over-the-month change in the Composite Index, which features an average of all indexes, decreased after three months of solid gains. The index had gone up from -13 to -7 in July. However, it dropped again to -9 in August. One year ago the same measure hovered on 3 and was trending upwards in positive terrain.

Kansas Manufacturing Composite Index. August 2015.

Looking at individual indexes, the prospective might give some hope for those who like to see the glass half full. For instance, in terms of number of employees the index shows improvements in spite of it remaining in negative numbers. Number of employees’ index went from -19 up to -10 in the month of August. Similar changes were registered for the average of employees’ workweek. Also, new orders for exports index showed a bit of speed the period of the survey. One of the respondents commented that “…Our year to date has been up from last year and our cash flow position is better; however, the next six months appear shaky at best”.