Survey of Tenth
District Manufacturing
by
Chad R. Wilkerson
Manufacturing activity in the Tenth Federal Reserve District grew
solidly in March. The year-over-year production index edged higher, and
employment and capital spending continued to increase. Price pressures
persisted, as the year-over-year and future price indexes remained at or
near record highs. All of the month-over-month indexes in the survey rose
for the second month in a row, 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 44 in March from readings of 43 in
February and 37 in January (Tables 1 & 2). In March, a slight
improvement in the production index among durable-goods-producing plants
offset a slight easing among nondurable-goods-producing plants, though
production remained well above year-ago levels for both categories of
firms. While sample sizes make it more difficult to draw firm conclusions
about individual states, the data available suggest that production was
well above year-ago levels in all district states.
Other
year-over-year indexes of factory activity generally remained solid. The
capital spending index continued to edge higher, rising from 26 to 30, and
the employment index rose from 15 to 18. On the other hand, the shipments
and new orders indexes fell somewhat from readings in recent months, as
did the index for average employee workweek. The inventory indexes were
both relatively high by historical standards. The index for materials
inventories rose nearly back to its ten-year-high of 25 set in January,
while the finished goods inventory index was unchanged at 17.
The
year-over-year price indexes diverged only slightly from February’s high
levels. The raw materials price index edged up for the fourth straight
month, from 83 to 86, to post another record high. The finished goods
price index edged down for the second straight month from the record high
posted in January, falling from 54 to 51. The slight widening in the gap
between the two indexes followed some narrowing earlier in the year and
suggests some firms may have encountered difficulties raising prices.
However, even though the finished goods price index has eased the last two
months, the reading in March was still the third-highest on record.
Plant managers’ expectations for future factory activity in March
were somewhat lower than in recent months. The six-month-ahead production
index fell from 48 to 33, its lowest reading since January 2004, and the
future shipments and employment indexes also fell to their lowest levels
in over a year. More positively, the future new orders index was virtually
unchanged from the solid readings of the previous four months. In
addition, the future capital spending index increased for the third
straight month, rising to its highest level since April 2004. The future
price indexes showed a similar pattern as the year-over-year price
indexes. The future raw materials price index edged up for the third
straight month, rising from 61 to 63. The future finished goods price
index fell from a record 42 in February to 35 in March, a similar reading
as in the three months prior to February. The slight widening in the gap
between the two future price indexes suggests more firms than a month ago
anticipate difficulties in passing cost increases through to customers.
Still, the future finished goods price index remains very high by
historical standards, indicating that a sizable number of firms plan to
continue raising prices.
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