Survey of Tenth
District Manufacturing
by
Chad R. Wilkerson
Manufacturing activity in the Tenth Federal Reserve District
expanded solidly in February. The year-over-year production index rose
after falling somewhat in January, and expectations for future factory
activity remained very strong. Manufacturing price pressures persisted.
The year-over-year raw materials and finished goods price indexes were at
or near record highs, and firms generally expect price pressures to
continue in the months ahead. All of the month-over-month indexes in the
survey rose in February, 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 rose to 43 in February, after falling from 50 in December to 37
in January (Tables 1 & 2). The small increase was due to improvement
at nondurable-goods-producing plants, as the production index for
durable-goods-producing firms remained about the same as last month’s high
level. 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 most district states.
Other
year-over-year indexes of factory activity were somewhat mixed, though
generally still quite solid. The capital spending index rose from 20 to
26, and the export orders index rose to 18, its highest reading since
1996. Meanwhile, the overall new orders index was unchanged at 45, and the
shipments, employment, and workweek indexes eased slightly. The inventory
indexes also fell somewhat after jumping to record levels in January.
The year-over-year price indexes changed only slightly from
January’s high levels. The raw materials price index edged up from 81 to
83, its highest reading ever, and the finished goods price index posted a
reading of 54 after rising to a record 55 last month. The gap between the
two price indexes was narrower in January and February than at any time
during 2003 or 2004, although the fact that the gap is still relatively
large suggests some firms continue to have difficulties passing price
increases on to customers.
Plant managers’ expectations for future
factory activity were very high. The six-month-ahead production index
edged up to 48. The last time the index exceeded this level was in late
2003. The future new orders and employment indexes also rose. The future
shipments, capital spending, and export indexes were virtually unchanged
from January but still high by historical standards. The future raw
materials price index edged up from 60 to 61, only slightly below its
April 2004 peak of 65. Meanwhile, the future finished goods price index
rose from 36 to 42, its highest level ever. Although a sizable gap
persists between the two future price indexes, the gap is the smallest
since late 2003, suggesting that firms may anticipate some increase in
pricing power in the months ahead.
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