ENMANUFACTURING, MARGINS & EQUIPMENT FINANCE · OCTOBER 23, 2026
Factory Activity Expands as Cost Pass-Through Remains Limited
The Kansas City Fed's October survey showed continued Tenth District manufacturing expansion, stronger future expectations, rising raw-material price pressure, and limited ability at many firms to pass higher costs to customers.
What the Kansas City Fed reported
Source publication date: October 22, 2026. The Federal Reserve Bank of Kansas City reported that its month-over-month Tenth District manufacturing composite index was 11 in October, compared with 14 in September and 10 in August. The index averages production, new orders, employment, supplier delivery time, and raw-material inventory measures. A positive diffusion index indicates more firms reported increases than decreases; it is not a percentage change in output.
- 01Activity remained expansionary
- 02Future composite index rose to 22
- 03Many firms reported limited cost pass-through
Future expectations strengthened
The year-over-year composite index moderated from 15 to 11, while the expectations composite index increased from 19 to 22, its highest reading since July 2022. Most month-over-month measures remained positive, although backlog and export new orders were negative. The employment, supplier delivery time, and materials inventory indexes increased. Regional survey responses do not establish demand, capacity, profitability, or credit quality for one company.
Cost pass-through remained uneven
The survey's special questions found that 16% of firms could not pass higher costs to customers and 35% could pass through only 1% to 20%. Another 22% said customers were much more price sensitive than six months earlier and 31% said customers were somewhat more sensitive. Rising raw-material costs combined with limited pass-through can pressure gross margin and increase working-capital needs even while reported activity expands.
Practical borrower takeaway
Reconcile current orders, backlog, shipments, inventory, supplier commitments, labor, unit cost, selling price, receivables, and gross margin to interim financial statements. Show when contracts permit repricing and how demand changes after an increase. Stress-test delayed pass-through, slower new orders, higher materials, and longer collections. Size equipment or working-capital debt from documented cash generation and availability rather than the regional index alone.
Manufacturing borrowers should support financing requests with company-level orders, backlog quality, unit margins, price-reset timing, inventory needs, and downside liquidity rather than relying on regional expansion alone.
Discuss a financing need →This independent summary is based on the cited source and is provided for general educational purposes only. Terms and program requirements may change.