Survey of Tenth
District Manufacturing
by
Chad R. Wilkerson
Manufacturing activity in the Tenth Federal Reserve District
remained strong in January. While several year-over-year
indexes---including production---fell somewhat from record or near-record
highs in December, a number of other indexes posted solid gains. In
addition, expectations for future factory activity were still very high.
The year-over-year price indexes both rose, with the index for finished
goods prices reaching its highest level in the ten-year history of the
survey. Expectations for prices in six months also remained elevated.
Month-over-month indexes in the survey were mixed in January, 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 to 37 in
January, down from 50 in December and the lowest reading since last May
(Tables 1 & 2). A smaller net percentage of both durable- and
nondurable-goods-producing firms than in December reported year-over-year
increases in production. While sample sizes make it more difficult to draw
firm conclusions about individual states, the data available suggest that
the decline in the overall production index was due to a smaller number of
Colorado and western Missouri firms reporting year-over-year increases in
production. Even so, the index remained relatively high by historical
standards, and production was still above year-ago levels in all district
states.
Other year-over-year indexes of factory activity were
mixed in January. The shipments index eased from 52 to 47 and the new
orders index fell to 45 from a record-high of 52 in December. Likewise,
the employment index dropped quite a bit after rising to a nine-year high
in last month’s survey. On the other hand, however, the workweek and
backlog indexes both rose, and the inventory indexes---for both raw
materials and finished goods---each jumped more than 10 percentage points
to reach all-time highs.
The year-over-year price indexes both
increased in January after largely holding steady in recent months. The
raw materials price index rose from 75 to 81, its highest reading since
last July. And the finished goods price index jumped from 41 to 55, easily
its highest reading in the ten-year history of the survey. The larger
increase in the finished goods price index may suggest an increase in
pricing power on the part of some manufacturers. However, the
still-sizable gap between the two price indexes suggests a number of firms
are still having difficulties passing cost increases through to customers.
Plant managers’ expectations for future factory activity remained
high. The six-month-ahead production index rose to 46, its highest reading
since last June, and the future shipments and orders indexes were about as
strong as in the previous two months. In addition, the future index for
new orders for exports rose to its highest level since early 2000, and the
future capital spending index remained solid. On the negative side,
however, the future employment index edged down for the third straight
month. Firms appear to plan to meet some of their future production needs
by having current employees work longer housr, as the future workweek
index rose to its highest level ever. Finally, the future price indexes
were largely unchanged from the past two months. Both indexes were near
their record highs set in April 2004, but the gap between the two indexes
remained sizable, suggesting some firms expect continued difficulties
passing cost increases through to customers.
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