Survey of Tenth
District Manufacturers
by
Chad R. Wilkerson
Manufacturing activity in the Tenth Federal Reserve District
continued to expand in January. The year-over-year production index fell
somewhat from the five-year high reached in December and the
year-over-year new orders index also eased moderately, but both indexes
remained quite positive and well above levels posted in recent years. The
six-month-ahead indexes for production and new orders also fell back
somewhat, although the indexes were still just as high as they were last
summer. The month-over-month production index rebounded solidly after
dropping nearly to zero in December, 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 fell to 24 in January, down from
readings in the low- to mid-30s during the fourth quarter of 2003 (Tables
1 & 2). Nevertheless, prior to October 2003, the last time a reading
of higher than 24 was posted was in mid-1998. Year-over-year growth eased
moderately at both durable- and nondurable-goods-producing firms, but
durable producers continued to report solid year-over-year gains and
nondurable producers also indicated production was slightly higher than a
year ago. While sample sizes make it more difficult to draw firm
conclusions about individual states, the data available suggest that
production eased back below year-ago levels in Colorado and western
Missouri but remained at or above year-ago levels in the rest of the
district.
Like the production index, most other year-over-year
indexes of factory activity fell somewhat in January but remained
considerably higher than in recent years. The shipments index edged down
from 29 to 27, and the new orders index dipped from 45 to 30. Likewise,
the employment index fell back below zero in January after posting a
positive reading in December for the first time in nearly four years. The
capital expenditures index was basically unchanged from December, while
the new orders for exports index continued to edge higher following the
recent fall in the value of the dollar. The inventory indexes—after rising
above zero in December for the first time in over a year—both fell back
into negative territory in January. These low inventory levels should
continue to provide a boost to production in coming months, as firms seek
to replenish stocks after catching up with their strong sales growth
during the second half of 2003.
There are tentative signs that
greater demand for manufacturing goods in recent months may be allowing
firms to pass some of their cost increases through to customers. The
year-over-year finished goods price index rose to 8 in January, which,
while still modest, was its highest reading since mid-2001. Meanwhile, the
year-over-year raw materials index remained very high, at 48, as some
firms reported modest increases in import prices and others reported
continued increases in the price of steel.
Expectations for future
factory activity in the Tenth District eased somewhat from the record
levels posted during the fourth quarter of 2003, but firms were still
generally as optimistic as they were last summer. The future production
index fell from 49 to 33, and the future new orders index eased from 45 to
38. Despite the recent strong increase in demand for their products, firms
continue to plan only moderate increases in hiring and investment heading
forward. The future employment index edged down to 12 in January, and the
future capital expenditures index was unchanged at 16. As for prices,
firms continue to expect rising materials prices and a greater ability to
pass cost increases through to customers. The future raw materials price
index rose from 35 to 42. Meanwhile the future finished goods price index
remained in the mid-teens, similar to November and December and up
moderately from readings during much of the past four years.
|
