Survey of Tenth
District Manufacturing
by
Chad R. Wilkerson
Manufacturing activity in the Tenth Federal Reserve District
remained well above year-ago levels in May, but expectations for future
factory activity were not as strong as in the recent past. The
year-over-year production index edged up last month, and the
year-over-year shipments and new orders indexes also rose. However, the
six-month-ahead production index fell moderately, reaching its lowest
level in over two years. Manufacturing price pressures eased slightly, but
a sizeable number of plants still plan to raise output prices in the
months ahead. Most month-over-month indexes in the survey rose in May, but
the monthly data are not seasonally adjusted, so caution must be taken in
basing analyses on month-to-month comparisons.
The net percentage
of firms reporting year-over-year increases in production edged up to 35
in May from 32 in April (Tables 1 & 2). While still high by historical
standards, these readings from the past two months were moderately lower
than readings posted throughout most of the past year. Year-over-year
production indexes remained at or above zero throughout the district and
were highly positive for both durable- and nondurable-goods producing
plants.
Other year-over-year indexes of factory activity were
mixed but still generally solid in May. The shipments index rose
considerably after falling in each of the past four months, and the new
orders index also jumped after easing in March and April. The employment
and workweek indexes were largely unchanged from the solid readings of the
past two months. On the other hand, the capital spending index fell
somewhat, and the inventory indexes dropped sharply after reaching
ten-year highs in April. The index for new orders for exports also fell
back into single digits for the first time since last fall.
The
year-over-year price indexes remained high but were down somewhat from the
previous month, indicating some easing in manufacturing price pressures.
The raw materials price index fell from 79 to 70, the lowest reading since
early 2004 but still very high by historical standards. The finished goods
price index also fell moderately. After reaching an all-time high of 59 in
April, the index fell to 46 in May, its lowest reading in five months.
Like the raw materials price index, however, the finished goods price
index was still quite high by historical standards.
Plant
managers’ optimism about future factory activity eased in May. The
six-month-ahead production index dropped from 41 to 31, and the future
shipments and new orders indexes also fell to the low 30s. The future
employment index increased somewhat, rising from 11 to 16, but was down
from readings in late 2004. The future capital spending index edged down
for the second straight month, but was still relatively high by historical
standards. The future price indexes both fell by 8 points, suggesting that
firms expect a further modest easing in manufacturing price pressures.
However, a net 31 percent of firms still expect to raise output prices
over the next six months.
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