The Kansas City Federal Reserve Bank said that manufacturing activity continued to expand strongly in March, with the composite index of general business conditions unchanged at 17. Employment (up from 23 to 26) remained one of the bright spots in the latest survey, with the index rising to a new all-time high in the survey’s 17-year history. This reflects an ever-tightening labor market, with the average workweek (up from 11 to 15) also widening to its best reading in seven years. At the same time, production (down from 21 to 20) and shipments (down from 24 to 12) slowed a little in March, with new orders (down from 16 to -1) contracting for the first time since August 2016. Exports (down from 2 to 1) were also softer than desired.

On the downside, the index for prices paid for raw materials (up 50 to 55) soared to its highest point since April 2011, mirroring other recent indicators showing accelerating input costs. Nearly 60 percent of the manufacturing leaders responding to the survey said that their raw material costs were higher in March, with just 4 percent noting reductions and 37 percent suggesting no changes. This is a trend that is expected to continue moving forward, with the forward-looking index for input costs (down from 73 to 72) edging down from a seven-year high but continuing to be very highly elevated. Accordingly, 74 percent of manufacturers in the Kansas City Fed district see raw material prices rising over the next six months, with 4 percent predicting declines for their firm.

Meanwhile, manufacturers remained upbeat about the next six months, even with some easing in March’s survey. The future-oriented composite index pulled back from February’s all-time high reading of 38 to 33 in March. Fifty-seven percent of respondents anticipate higher new orders, production and shipments in the coming months, with 47 percent and 42 percent seeing more employment and capital spending, respectively.

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