Survey of Tenth
District Manufacturers
by
Chad R. Wilkerson
Manufacturing activity in the Tenth Federal Reserve District
expanded strongly in April. The year-over-year production index rose
markedly, and the shipments and new orders indexes rose to their highest
levels in the 10-year history of the survey. The employment and capital
spending indexes also continued to improve. The year-over-year raw
materials price index reached a new high, as did the finished goods price
index, as more firms than in previous surveys were able to pass cost
increases through to customers. All of the month-over-month indexes of
factory activity increased in April, but the monthly data are not
seasonally adjusted, so caution must be taken in basing analyses on
month-to-month comparisons. Until several years of data are available for
seasonal adjustment, this report will focus primarily on changes in
activity versus a year ago.
The net percentage of firms reporting
year-over-year increases in production rose to 43 in April, up markedly
from 31 in March, and the first reading in the 40s since early 1998
(Tables 1 & 2). The improvement in the production index in April was
due to increased activity among durable goods manufacturers, although
output at nondurable-goods-producing plants was above year-ago levels as
well. While sample sizes make it more difficult to draw firm conclusions
about individual states, the data available also suggest that production
was at or above year-ago levels throughout the district.
Like the
production index, most other year-over-year indexes of factory activity
increased in April, and some were at record highs. The new orders index
rose past 50 for the first time ever, and the shipments, backlog,
workweek, and supplier delivery time indexes were also at survey highs. In
addition, the employment and capital spending indexes both continued to
rise. The inventory index for raw materials was slightly positive, and the
finished goods inventory index was slightly negative. Both inventory
indexes have remained close to zero for the last several months,
suggesting that the long reduction in stock levels that began in early
2001 may have come to an end.
Price indexes for both raw materials
and finished goods rose considerably in April. The year-over-year raw
materials price index jumped from 64 to a survey high of 82, with only one
firm reporting lower materials prices than a year ago. Likewise, the
year-over-year finished goods price index surged from 19 to 37, also a
survey high, as a higher percentage of firms than in previous surveys were
able to pass cost increases through to customers.
Plant managers’
expectations for future factory activity remained very high. The future
production and new orders indexes both rose to 46 after edging down in
March. These readings are only moderately lower than the survey highs
reached in the fourth quarter of 2003. With strong factory activity
expected to continue, firms plan more hiring and investment than in
previous surveys. The future employment index rose from 19 to 28, and the
future capital spending index increased from 22 to 34. Concerns about
material prices persisted, as the future raw materials price index rose
from 55 to 65. Even so, a number of firms anticipate some easing in input
price pressures heading forward. The future finished goods price index
rose from 24 to 39, suggesting firms anticipate some improvement in
pricing power heading forward. However, several firms also noted that
future increases in output prices will likely be of smaller magnitude than
recent price increases, due to a leveling off or decline in some materials
prices.
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