Fed Data Suggest Factories Could Be Shrugging Off Tariffs

(Bloomberg) -- Pressing on in spite of tariffs is the prevailing policy of manufacturers across America’s Great Plains, judging by a new batch of data.

Orders rose to the highest since 2003. Production and shipments were also up.

The Federal Reserve Bank of Kansas City’s regional factory index advanced to a record 26 this month even as a trade war loomed.

“Factory activity accelerated in April despite concerns among many firms about changes in international trade policy,” said Chad Wilkerson, vice president and economist at the Kansas City Fed.

Comments from unnamed survey participants were restrained:

• “Trade talks with China decreased our profitability. We’ve recovered most of that now, but short term impact is real and continues to linger.”
• “Looking at manufacturing our product in Mexico. Any additional tariffs on Chinese products will impact the number of employees due to lost sales.”
• “Markets are expanding across many segments/verticals. We will win share by lead time and availability. We could grow significantly more if we had available engineers and direct labor.”
• “Initially, the future prospect of higher steel and aluminum prices forced manufacturers, such as ours, to buy material in advance of the need, otherwise face a price increase. That caused a run on available material, to which now there is a shortage. This is causing raw material cost increases to which we are having to absorb. We expect a negative short term effect on profitability until we can hopefully pass on the higher cost to our customers. In the meantime imported material costs are not changing and are negatively effecting competitiveness of domestically produced products"

The Kansas City Fed’s district covers Kansas, Colorado, Nebraska, Oklahoma, Wyoming, the northern half of New Mexico and the western third of Missouri.

To contact the reporters on this story: Vincent Del Giudice in Denver at vdelgiudice@bloomberg.net, Kristy Scheuble in Washington at kmckeaney@bloomberg.net.

To contact the editor responsible for this story: Alex Tanzi at atanzi@bloomberg.net.

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