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Kansas City Fed reports steady July economy, optimism increase for next 6 months

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Joe Mueller

(The Center Square) – Business activity was steady in July in Midwest and Mountain states and expectations rose for increased economic activity, according to a report from the Federal Reserve Bank of Kansas City.

“Firms expect revenues to grow and employment activity to moderate in the future,” Chad Wilkerson, senior vice president at the bank, said in a statement announcing the release of the July services report.

The report was published two days after the Federal Reserve increased its federal funds rate to 5.25 percent to 5.5 percent, the highest in 22 years. The Fed didn’t raise its rates in June, ending a period of 10 monthly rate increases, to return the nation's inflation rate to its target of approximately 2 percent. Inflation increased 3 percent for the 12 months ending in June, according to the Bureau of Labor Statistics. It was the smallest 12-month increase since the period beginning March 2021.

The Kansas City Fed’s monthly survey provides several indicators of business activity, including sales, revenue, employment, capital spending and changes in prices of selling prices and input materials. A wide variety of industries are represented in the survey, including retail and wholesale trade, automobile dealers, transportation, information, tech and professional services, real estate, education, restaurants, health services and tourism.

“The year-over-year composite index was unchanged at -11, as revenues, employment and inventories continued to decrease,” the report stated.

However, the July composite index dropped 13 points from June, but only four points compared to May. The index is a weighted average of revenue, sales, employment and inventory indexes.

“Tourism revenues increased substantially, while wholesale and real estate activity declined significantly,” the report stated. “Growth in restaurants and retail cooled in July. All month-over-month indexes increased from previous readings, except for part-time/temporary employment and input prices.”

Economists asked businesses to predict if they would see an increase, decrease or no change in general revenue/sales. This month’s report showed 31 percent expected increases in general revenue/sales compared to 29 percent in June; 31 percent expect a decrease in the July report compared to 37 percent in June.

Economists asked businesses special questions about profit margins. Since the beginning of the year, 62 percent of firms reported profit margins decreased either significantly or slightly; 20 percent reported no change and 18 percent reported a slight or significant profit increase.

Businesses also were asked about supply chains. When looking back at the last 12 months, 64 percent of businesses said supply chains were much better or slightly better; 22 percent reported no change, 8 percent stated they were slightly worse, none reported they were much worse and 6 percent reported no supply chain issues during the last year.

The Kansas City Fed serves the 10th Federal Reserve District, which covers the western third of Missouri, all of Kansas, Colorado, Nebraska, Oklahoma, Wyoming and the northern part of New Mexico.