By Xavier Fontdegloria

 

Factory activity in the U.S. central region gained momentum in October compared with the previous month, according to data from a survey compiled by the Federal Reserve Bank of Kansas City released Thursday.

The Tenth District Manufacturing survey's composite index increased to 31 in October from 22 in September, beating the 23.5 forecast from economists polled by The Wall Street Journal.

The indicator gauges manufacturing activity in firms located in the western third of Missouri, all of Kansas, Colorado, Nebraska, Oklahoma and Wyoming, and the northern half of New Mexico. Values greater than zero suggest growth, while values below zero indicate contraction.

"Regional factory activity rose further," said Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City.

The U.S. industrial sector is expanding on strong demand, but firms struggle to keep up with orders as supply-chain bottlenecks constrain output.

In the U.S. central region, October's growth was supported by increased activity at nondurable goods plants, in particular paper and printing production, chemical manufacturing, and plastics products, the Kansas City Fed said.

The production index increased to 25 from 10 the previous month, suggesting output growth accelerated.

Demand also picked up steam. The volume of shipments index rose to 28 from six, while the volume of new orders index climbed to 27 from seven the prior month.

The employment index edged up to 34 from 21 in September, signaling that firms added payrolls at a faster pace.

Supply constrains continued to be widespread, with the supplier delivery time index reaching another survey high of 50, up from 43 the previous month.

"We currently see both increasing demand and supply-chain bottlenecks occurring," one of the companies polled said. "Meeting increased demand will make it exceedingly hard to clear the bottlenecks," it said.

The monthly index of prices paid for raw materials posted a new survey record high in October at 87, and 99% of firms continued to report higher input prices compared with a year ago. The index of prices received for finished products increased to 47 from 40.

"There is no way to increase prices enough to off-set higher costs from transportation and labor shortages and material cost increases," another respondent from the survey said.

Manufacturing firms remained optimistic about the short-term outlook. The future composite index, which relates to the outlook in the next six months, was broadly steady at 34. Expectations for future production eased, and more district manufacturing firms see additional materials and finished goods price increases over the next six months.

 

Write to Xavier Fontdegloria at xavier.fontdegloria@wsj.com

 

(END) Dow Jones Newswires

October 28, 2021 11:37 ET (15:37 GMT)

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