The Kansas City Federal Reserve reported that manufacturing activity in its region rose slightly in September, with its composite index up to 6 from 3 in August [1]. This continues the trend, mentioned in a posting from earlier this week [2], of stronger activity in the Midwest than in the Mid-Atlantic region. 

The good news in this survey is some modest improvements in production, shipments, new orders and employment. Indices for production and shipments, for instance, both switched from -2 in August (a slight contraction) to +3 in September (a slight expansion). Reflecting this increased activity, the index for the average employee workweek also rose, from -5 to +6. Pricing pressures remain elevated, with more of the respondents able to pass along some of their cost increases.

Looking ahead to the next six months, manufacturers in the Kansas City region remain positive. The composite index, albeit less so than in previous months. Measures of production, shipments, new orders and employment are about the same as they were in August or slightly lower. Despite the degree of optimism, the average employee workweek is expected to contract, the pace of capital expenditures and exports are projected to slow somewhat and those taking the survey expect fewer inventories.

As a whole, the accompanying chart shows that manufacturing activity remains week. By averaging together the composite indices from the Dallas, Kansas City, New York, Philadelphia and Richmond regional Federal Reserve Bank surveys, we can see a definite trend emerging.

Each of these surveys has seen a deterioration of activity in recent months. As a group, though, the most recent surveys have seen an improvement in the September survey.  Some became less negative, while others, like the Kansas City Fed survey discussed in this post, edged slightly higher into positive territory. Hopefully, this is the beginning of a trend.

In other news, the Commerce Department released its third estimate for second quarter 2011 gross domestic product earlier today [3]. Real GDP grew 1.3 percent, down from the second estimate of 1 percent, mostly on upward revisions to consumer spending and exports, with a downward revision in imports. Note that this still suggests fairly anemic growth in the first half of this year, especially since real GDP grew by just 0.4 in the first quarter.

I am currently estimating that real GDP will grow 1.4 percent for 2011, suggesting growth around 2 percent for the second half of this year.  

Chad Moutray is chief economist, National Association of Manufacturers.