Survey of Tenth
District Manufacturing
by
Chad R. Wilkerson
Growth in manufacturing activity in the Tenth Federal Reserve
District was very modest in July, but activity remained much stronger than
a year ago, and expectations for future activity were the highest in
several months. Manufacturing price pressures edged up in July but
remained lower than in 2004. The July survey incorporates
seasonally-adjusted numbers for the first time, so this report will focus
more on month-to-month changes in factory activity than did past reports.
The net percentage of firms reporting month-over-month increases
in production in July was 1, down moderately from 11 in June and 7 in May,
and the lowest reading in over two years (Tables 1 & 2, Chart). More
positively, the year-over-year production index edged up from 38 to 42,
similar to the generally strong readings on that index from early 2004 to
early 2005. While sample sizes make it difficult to draw firm conclusions
about individual states, the data available suggest production rose
solidly in Kansas, fell in western Missouri, and was largely unchanged in
other district states in July. Production in all district states remained
well above year-ago levels.
Several other month-over-month indexes
of factory activity were also lower in July than in June. The shipments
index dropped from 18 to 7, the new orders index fell from 17 to 10, and
the workweek index edged down from 14 to 11. On the other hand, the
employment index rose from 7 to 17, a reading that has been surpassed only
once since the 2001 recession. The index for inventories of finished goods
also rose moderately, posting a reading of 5 in July following negative
readings in May and June.
Like production, most other
year-over-year indexes of factory activity remained quite strong. The
shipments and new orders indexes were in the mid-40s, down only slightly
from all-time highs in the low 50s in 2004, and the employment and capital
spending indexes were around 20, solid readings by historical standards.
The inventory indexes—for both raw materials and finished goods—were also
around 20, higher than in the past two months.
The
month-over-month price indexes both rose slightly in July after easing in
recent months. The raw materials price index increased from 18 to 27, the
highest reading since April but still considerably lower than readings
throughout 2004. The finished goods price index edged up from 5 to 10 but
also remained lower than readings from mid-2004 through spring 2005. The
year-over-year price indexes were virtually unchanged from June and still
very high by historical standards.
Plant managers’ expectations
for future factory activity were stronger than in recent months. The
future production index rose from 33 to 40, the highest since February,
and the future shipments and orders indexes posted even larger gains from
June to July. The future employment index rose from 17 to 24, the highest
reading since last fall and especially encouraging given the sizable
increase in the month-over-month employment index in July. The future
capital spending index also edged up in July, though it was slightly lower
than readings in late 2004 and early 2005. The gap between the future
price indexes narrowed slightly. The future raw materials price index
edged down from 37 to 36, while the future finished goods price index rose
from 23 to 27. Both future price indexes remained below their late 2004
peaks, but the future finished goods price index remains quite high by
historical standards, suggesting some price pressures could persist at the
wholesale level for the remainder of the year.
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