These Are Some Of The Starkest Comments Yet That Businesses Are Seeing A Slowdown Due To The Sequester
The headline index plunged to -10 from -2. Economists were expecting it to tick up to -1. Any reading below zero on the index indicates contraction, so what that means is that between January and February, already troubling economic conditions in that region got way worse.
And none of the forecasters saw this coming (the lowest estimate from economists surveyed by Bloomberg was for an unchanged reading at -2).
So what gives?
According to the respondents to the survey, this is a story about sequestration – the spending cuts set to go into effect tomorrow if the politicians in Washington, D.C. can't come up with some sort of deal to avert it.
The Kansas City Fed noted in the release that "many firms expressed concern about possible direct and indirect impacts on orders should federal spending cuts occur with sequestration."
Here's what some of the respondents to the survey told the Kansas City Fed:
“Very concerned about the reduction in military spending which will likely happen. This could force us to reduce planned capital spending.”
“The uncertainty is holding back capital purchases from many of our fleet customers.”
“Sequestration is causing customers to delay and/or push back orders.”
“Customers are still being cautious about capital spending.”
“We are not sure what the effects of sequestration will be, so as a result, we are delaying nearly all spending and hiring plans.”
To get a sense for the significance of that last comment, take a look at some of the sub-indices of the report.
Production fell to -11 from -3.
Volume of new orders fell to -25 from -2.
Volume of shipments fell to -12 from -3.
Number of employees collapsed to -8 from +2. (This means that whereas in January, firms were hiring, by February, they were firing – and at a lot faster pace than they were hiring in the previous month.)
This isn't necessarily representative of the entire country – the Chicago district, for example, appears to be doing quite well – but wow. Sequestration concerns sure seems to be hitting the Kansas City region pretty hard.