By Xavier Fontdegloria

Factory activity in the central U.S. region cooled in June for the third consecutive month, growing at its lowest level in 18 months, according to data from a survey by the Federal Reserve Bank of Kansas City released Thursday.

The Tenth District manufacturing survey's composite index fell to 12 in June from 23 in May, the lowest reading since December 2020 and below the 21 consensus forecast from economists polled by The Wall Street Journal.

"The pace of regional factory growth slowed further but was still expansionary," said Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City.

The indicator gauges manufacturing activity of firms located in the western third of Missouri, all of Kansas, Colorado, Nebraska, Oklahoma and Wyoming, and the northern half of New Mexico. A value greater than zero signals that activity grew over the month.

The survey's data show that manufacturing activity expanded overall, but there were slight declines in production, shipments, new orders and order backlogs.

The slower pace of factory growth was driven by decreased activity at durable goods plants in June, especially electrical equipment, transportation equipment and furniture, the Kansas City Fed said.

The production index fell to minus one in June from 19 the previous month, suggesting a slight retreat in output.

Demand indicators pointed to weakening conditions. The volume of shipments index fell to minus three from 17, and the volume of new orders index decreased to minus eight from 15.

"[We are] expecting a big decrease in sales the last half of the year," one of the respondents of the survey said. "[It] appears [that] our customers over ordered and have excess supply in the near term," the company said.

The employment index fell to 18 in June from 34 in May, signaling that firms continued to expand their workforce but at a slower pace than the previous month.

Supply-side constraints showed further signs of easing. The backlogs of orders index fell to minus four from 20, signaling a decline in backlogged orders, and the supplier delivery time index decreased slightly to 25 from 29.

Firms' costs and prices charged to customers continued to grow sharply, according to the survey. The index of prices paid for raw materials fell marginally to 71, and the index of prices received for finished products increased to 51 from 42.

Optimism among firms in the area decreased markedly, with the future composite index--which gauges the outlook in the next six months--falling to 10 in June from 31 the previous month. Indexes for future production, shipments, new orders and capital spending continued moderated too, the Kansas City Fed said.

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

(END) Dow Jones Newswires

June 23, 2022 11:38 ET (15:38 GMT)