Survey of Tenth
District Manufacturing
by
Chad R. Wilkerson
Manufacturing activity in the Tenth Federal Reserve District
expanded less rapidly in April than in the previous two months, but
expectations for future activity remained strong. Many firms continued to
raise output prices even as growth in materials prices eased somewhat, and
further increases in output prices are expected in the months ahead. All
of the month-over-month indexes in the survey rose for the third 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 fell
from 44 in March to 32 in April, the lowest reading since March 2004
(Tables 1 & 2). Even at 32, however, the index was relatively high by
historical standards. The production index fell somewhat among both
durable-goods-producing plants and nondurable-goods-producing plants,
though the indexes for both types of firms remained well above zero. While
sample sizes make it more difficult to draw firm conclusions about
individual states, the data available suggest that production remained
above year-ago levels in all district states.
Other year-over-year
indexes of factory activity were mixed. The shipments index fell for the
fourth month in a row, dropping from 34 to 24, its lowest reading since
late 2003. Several firms noted that they were delaying some shipments to
ensure full truckloads and thus save on fuel costs. Like the production
and shipments indexes, the new orders index also fell to its lowest level
in over a year. More positively, the employment index edged up for the
second month in a row, and the capital spending index remained quite high
at 29. The inventory indexes both increased nearly 10 points. The index
for raw materials inventories rose to 33, its highest reading on record.
Similarly, the index for finished goods inventories rose to a ten-year
high, perhaps due to the delaying of shipments by some firms.
The
gap between the year-over-year price indexes closed considerably in April.
The finished goods price index rose to 59, surpassing its previous
all-time peak of 55 set in January. Meanwhile, the raw materials price
index fell from a record 86 in March to 79 in April. The gap between the
two indexes was the smallest in nearly three years, suggesting a greater
ability of firms to pass cost increases through to customers.
Plant managers’ expectations for future factory activity improved
in April after falling somewhat in March. The six-month-ahead production
index rose from 33 to 41. This level was below the high readings of
January and February but very similar to the second half of 2004 and still
quite high by historical standards. The future shipments index also rose
solidly, while the future new orders index remained similar to its high
readings of the past year. On a less upbeat note, the future employment
and capital spending indexes both fell slightly. Indeed, the future
employment index was the lowest since mid-2003. Finally, similar to the
year-over-year price indexes, the gap between the future price indexes
narrowed somewhat, suggesting some firms expect continued improvement in
their ability to past cost increases through to customers.
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