October 2026 Survey

Factory Activity Increased Steadily

The month-over-month composite index was 11 in October, down from 14 in September, and up from 10 in August (Tables 1 & 2). The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. Growth in both durable and nondurable manufacturing activity slowed slightly, but there was strong growth in printing activities. All month-over-month indexes were positive except for the backlog of orders and the new orders for export indexes. Most month-over-month indexes saw lower readings from last month, but the employment, supplier delivery time, and material inventory indexes increased. The year-over-year composite index moderated from 15 to 11, and most indexes were positive except for new orders for exports and the employment index. Expectations for future activity remained expansionary with the composite index increasing from 19 to 22, with the expectations for employment index ticking up.

Special Questions

This month, contacts were asked special questions about cost pass through ability and customer sensitivity to price changes. Almost a fifth (16%) of firms reported they are not able to pass through their higher costs to customers in the form of higher prices, 35% of firms reported they are able to pass through 1-20% of their higher costs, 7% of firms reported 21-40%, 16% reported 41-60%, 11% of firms reported 61-80%. 13% of firms reported 81-100%, 1% of firms reported they are able to pass through more than 100% of their higher costs, and 1% of firms reported they have had to decrease price (Chart 2). Firms were also asked about how their customers' sensitivity to price has changed compared to six months ago. Almost a quarter (22%) of firms reported their customers are much more sensitive now, 31% of firms reported their customers are somewhat more sensitive, 41% of firms reported their customers' sensitivity is about the same, 5% of firms reported that their customers are somewhat less sensitive, and 1% of firms reported their customers are much less sensitive now than they were six months ago (Chart 3).

Selected Manufacturing Comments

"Customer ordering activity was relatively strong during the first half of 2026 but has slowed noticeably since July. Customers appear to be more cautious with their purchasing decisions and are placing fewer orders ahead of anticipated needs. While shipments have remained relatively strong, much of that activity has been supported by our existing backlog rather than new orders. Some of the slowdowns may be attributable to shorter lead times, which allow customers to order closer to when products are needed. However, we believe there has also been some underlying softening in demand."

"Global trade is impacting materials costs and delivery."

"Fuel surcharges are being implemented as we can no longer absorb increased fuel cost."

"Geopolitical issues and uncertainty are causing additional challenges to predictably run our business and for our customers."

"Our customers are not blinking when we pass on our higher costs to them in the form of higher prices."

"Cost pressures from fuel, delivery and increased health insurance continue to reduce margins. Competition continues to push prices down. Unsustainable market conditions."

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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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