Academic journal article Economic Review (Kansas City, MO)

What Can Regional Manufacturing Surveys Tell Us? Lessons from the Tenth District

Academic journal article Economic Review (Kansas City, MO)

What Can Regional Manufacturing Surveys Tell Us? Lessons from the Tenth District

Article excerpt

The Federal Reserve Bank of Kansas City conducts a monthly survey of over 100 manufacturers across the Tenth District. Other Federal Reserve Banks conduct similar surveys of manufacturers within their districts, as do a number of regional associations of purchasing managers. These regional surveys do not receive as much attention as the national survey of manufacturers by the Institute of Supply Management. However, the regional surveys receive much more attention than they did only a few years ago, thanks to the unending search by reporters and business analysts for timely information about the economy.

The increased attention paid to regional manufacturing surveys makes it important to know what kind of information these surveys provide. These surveys differ from other data sources by collecting only qualitative information, such as the direction of change in activity. The surveys could be useful either because they tell us something about regional manufacturing conditions, or because they signal something about manufacturing conditions in the nation as a whole. Another issue is whether the main contribution of the surveys is timely information about current conditions or accurate forecasts of future conditions. Finally, in deciding whether the surveys are worth the time and effort of conducting them, it is important to know whether they add any information beyond that contained in other publicly available data on the manufacturing sector--data such as industrial production and manufacturing employment.

This article addresses these issues by examining the information content of the Kansas City Fed Manufacturing Survey. The article concludes that the main value of the survey is providing information about current and future manufacturing conditions in the district, especially on variables such as production, orders, and capital spending for which no independent data exist at the regional level. The article also points out that while the Kansas City Fed survey provides little direct information about national manufacturing conditions, it can be a useful source of indirect information about such conditions. In particular, the results from the Kansas City Fed survey can be combined with similar information from other regions to obtain a more complete picture of national manufacturing conditions than is available from other published data.

The article begins with a brief description of the Kansas City Fed Manufacturing Survey. The second section presents an overview of qualitative business surveys, focusing on their advantages and disadvantages relative to quantitative data. The third section summarizes previous studies of the information content of U.S. manufacturing surveys, including both the national ISM survey and the regional surveys conducted by other Federal Reserve banks. The fourth section presents evidence on the information content of the Kansas City Fed survey, while the fifth section discusses the implications of that evidence.

I. THE KANSAS CITY FED MANUFACTURING SURVEY

The Kansas City Fed Manufacturing Survey is one of several surveys of regional manufacturing activity in the United States. All of these surveys are modeled after a national manufacturing survey conducted since the 1930s by the Institute of Supply Management (ISM). (1) The Kansas City Fed survey was begun in October 1994 to monitor manufacturing activity in the seven-state area covered by the Tenth Federal Reserve District (Colorado, Kansas, Nebraska, Oklahoma, Wyoming, western Missouri, and northern New Mexico). For the first seven years of its existence, the survey was conducted four times a year, in the first month of each quarter (January, April, July, and October). Since July 2001, the survey has been conducted on a monthly basis. (2)

The survey sample consists of approximately 150 manufacturing plants across the district. Of these plants, about 110 respond to the survey each month. …

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