News Column

Fiscal Cliff Drags Down Midwest Manufacturing Activity

Dec. 26, 2012

Steve Rosen, The Kansas City Star


When it comes to the so-called fiscal cliff, some regional manufacturers have raised the white flag.

Data from the Federal Reserve Bank of Kansas City indicate that manufacturing activity in a seven-state area that includes Kansas and Missouri weakened in December. The reason: The uncertainty created by the drama in Washington that could lead to year-end tax increases and spending cuts.

"We saw factory activity decline for the third straight month," said Chad Wilkerson, vice president and economist with the Kansas City Fed.

One positive: The decline was smaller than in October and November.

The Fed's month-over-month composite index of manufacturing activity posted a reading of -2 in December. The index is an average of indexes that measure production, new orders, employment, supplier delivery time and raw materials inventory.

The monthly report covers Kansas, the northern half of Missouri, Nebraska, Colorado, Oklahoma, Wyoming and part of New Mexico.

Wilkerson also said a "higher share" of manufacturers planned to decrease employment into early 2013 because of expectations of only a modest increase in new business.

Hiring is not expected to pick up until later next year, Wilkerson said.

The frustration over the standoff between the Obama administration and House Republicans was reflected in comments from unidentified plant operators that were included in the Fed report:

--"There is uncertainty about how capital equipment expenses will be taxed and uncertainty about how oil and gas exploration taxes will be changed, thus reducing demand for products used in drilling and production."

--"Lack of clarity is discouraging. We cannot anticipate the effects of taxes, insurance and other fiscal policy so we need to conserve cash."

--Because of "uncertainty relating to 2013 tax rates, we have decided to decrease hiring plans."

--"The uncertainty has stunted investment from our customer base on capital expenditures where our products are sold and used. Thus lower bookings, lower sales and lower employment."

--"Increases in insurance costs and uncertainty on taxes certainly increase our caution in adding to the payroll at this time."

Source: (c)2012 The Kansas City Star (Kansas City, Mo.) Distributed by MCT Information Services

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