Factory Activity Increased Moderately
The month-over-month composite index was 11 in March, up from 5 in February and 0 in January (Tables 1 & 2). The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. Both durable and nondurable manufacturing activity increased in March. Growth in the durable manufacturing sector was driven primarily by wood product manufacturing, while growth in the nondurable manufacturing sector was driven by paper and plastics and rubber product manufacturing. The month-over-month indexes were all positive except for new orders for exports. The volume of shipments and new orders indexes increased, with readings of 20 and 15, respectively. The employment index rebounded into positive territory from -7 to 6. Most year-over-year indexes were positive except for new orders for exports, number of employees, and finished goods inventory. The capital expenditures index cooled from 8 to 5. Expectations for future activity grew further with the composite index increasing from 15 to 16, as expectations for production ticked up.
Manufacturing Composite Indexes
Skip to data visualization table| Date | Vs. a Month Ago | Vs. a Year Ago |
|---|---|---|
| 3/1/2025 | -1 | -7 |
| 4/1/2025 | -2 | -8 |
| 5/1/2025 | -3 | -5 |
| 6/1/2025 | -1 | -14 |
| 7/1/2025 | 1 | -5 |
| 8/1/2025 | 1 | -2 |
| 9/1/2025 | 3 | -7 |
| 10/1/2025 | 4 | -6 |
| 11/1/2025 | 7 | -1 |
| 12/1/2025 | 0 | -4 |
| 1/1/2026 | 0 | -4 |
| 2/1/2026 | 5 | 2 |
| 3/1/2026 | 11 | 8 |
Special Questions
This month, contacts were asked special questions about expected changes in profit margins and product demand. Approximately a quarter (24%) of firms reported that they expect their profit margins to remain unchanged over the next 12 months, 1% of firms expect their profit margins to significantly increase, 31% expect a slight increase, 35% expect a slight decrease, and 9% expect a significant decrease (Chart 2). Firms were also asked about product demand compared with last year. Half of firms expect their product demand to be slightly higher in 2026 than in 2025, 10% expect their product demand to be significantly higher, 20% expect no change in product demand, 16% expect their product demand to be slightly lower, and 4% of firms expect product demand to be significantly lower (Chart 3).
Selected Manufacturing Comments
“We are hiring as fast as possible and turning work down.”
“Business is good.”
“Our core customers have not ramped production as much as anticipated.”
“Going to see a bump in costs due to increasing fuel costs.”
“Continued uncertainty in transportation costs, regulatory exposure, and unsteady demand continue to make long-term planning almost impossible. Due to this, as a company, we are more reactionary than typical. This hurts short-term profits and cashflows.”
“Seeing growth in quotes and orders albeit fairly small.”
“We are starting to raise prices now because of higher energy costs.”
“Must see a Q2 volume increase or assurance thereof to remain viable.”
Survey Data
The views expressed are those of the authors and do not necessarily reflect the positions of the Federal Reserve Bank of Kansas City or the Federal Reserve System.
Authors
Cortney Cowley
Assistant Vice President and Oklahoma City Branch Executive
