July 2026 Survey

Factory Activity Remained Steady

The month-over-month composite index was 9 in July, down from 11 in June and up from 8 in May (Tables 1 & 2). The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. Growth slowed in the nondurable manufacturing sector, primarily driven by declines in food manufacturing. Stronger growth in the durable manufacturing sector was driven by electrical equipment manufacturing. All month-over-month indexes were positive except for new orders for exports at -1. The inventories and employee workweek indexes rose from last month. The year-over-year composite index eased from 15 to 14, but all other indexes were positive except for new orders for exports and employment. Expectations for future activity remained expansionary with the composite index at 20, reaching its highest reading since July 2022, as expectations for future production and shipments are elevated.

Special Questions

This month, contacts were asked special questions about profit margin changes and changes in demand expectations. Almost a quarter (24%) of firms reported a slight increase in profit margins from the beginning of the year, 3% reported a significant increase, 16% reported no change, 43% reported a slight decrease, and 14% reported a significant decrease (Chart 2). Firms were also asked about changes in demand expectations for their products for the remainder of the year. A third of firms expect no change in demand, 6% expect demand to be significantly higher, 43% expect demand to be slightly higher, 11% expect demand to be slightly lower, and 7% expect demand to be significantly lower for the remainder of the year (Chart 3).

Selected Manufacturing Comments

"Capacity had to be reabsorbed after covid. The result was a downturn in the industry 2023-25. There seems to be a slow general recovery."

"Due to anticipated volume increases with new business we are bringing in, we are assessing plant layout and equipment deficiencies. These will be addressed, which will improve productivity and throughput."

"Data center and related construction is masking an underlying softness in other segments such as housing and non-residential."

"Good levels of business in data center, geothermal and LNG. Other basic markets are dull."

"We are seeing softening on orders as our customers work down inventory levels. They no longer are holding excess inventory and uncertainty on demand has led many companies, including us, to bleed down inventory and conserve cash. We have frozen hiring and we are not replacing employees who leave. Continued uncertainty continues to increase cost of doing business."

"We have incurred decrease in productivity percentage because of reduced talent and settling for less than best."

"The reduction in turnover has allowed our general workforce to increase in skill set."

"Second half of 2026 appears dismal."

"Foreign sales are up year-to-date."

"We have the largest price increase we have ever experienced in the last 25 years. We are also getting several price increases during the year. We used to get just one or two price increases at most in past years."

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The views expressed are those of the authors and do not necessarily reflect the positions of the Federal Reserve Bank of Kansas City or the Federal Reserve System.

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