Survey of Tenth District Manufacturers
by Chad R. Wilkerson
Manufacturing activity in the Tenth Federal Reserve District expanded further in March. The year-over-year production and employment indexes edged higher, and the capital expenditures index rose solidly. While the year-over-year new orders index fell moderately, expectations for future factory activity also remained very strong. Also, the raw materials price index continued to rise, and more firms than in recent surveys were able to pass some of their recent cost increases through to finished goods prices. The month-over-month production index rose considerably in March, 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 31 in March, up modestly from 27 in February and 24 in January (Tables 1 & 2). Production improved at both durable- and nondurable-goods-producing plants in March, with both types of plants experiencing solid year-over-year gains. While sample sizes make it more difficult to draw firm conclusions about individual states, the data available also suggest that production was above year-ago levels in all district states.
Like the production index, most other important year-over-year indexes of factory activity improved in March. The employment index edged up to 14 after posting its first double-digit reading in nearly six years in February, and the capital expenditures index doubled from 9 to 18. The indexes for shipments and export orders also rose slightly. In addition, the supplier delivery time index jumped to 20, its highest level in the nine-year history of the survey, as rising global demand for manufactured goods and short supply of some materials combined to cause delays. On the negative side, the new orders index slipped from 38 to 29 to post its lowest reading since last August. Prior to last August, however, the last time the new orders index was higher than 29 was in early 1998. The inventory indexes were mixed. The raw materials inventories index rose slightly, while the finished goods inventory index turned negative again to continue its up-and-down pattern of the past five months.
Price indexes for both raw materials and finished goods rose in March. After steadying somewhat in January and February, the year-over-year raw materials price index jumped from 50 to 64 in March, the highest reading since early 1995. The finished goods price index also increased moderately, rising from 11 in February to 19 in March, as more firms than in previous surveys were able to pass some of their recent cost increases through to customers.
Despite a moderate dip in the year-over-year new orders index, expectations for future factory activity in the district remained quite strong in March. The future production and new orders indexes each edged down slightly—--to 40 and 36, respectively—--but remained high by historical standards. The future capital spending index was basically unchanged at 22, while the future employment index rose from 13 to 19. Concerns about material prices and availability persisted, as the future raw materials price index rose from 48 to 55 and the future supplier delivery time index increased from 5 to 14. The future finished goods price index was virtually unchanged at 24. The relatively high value of this index suggests a sizable number of firms expect to be able to pass some, although by no means all, of their recent cost increases through to customers.
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