News Release Federal Reserve Bank of Kansas City Kansas City, Missouri 64198 Phone (816) 881-2683 Fax (816) 881-2569 FOR RELEASE Monday, June 14, 2004 EMBARGOED FOR 11:00 A.M. EST FOR RELEASE MONDAY, JUNE 14 EMBARGOED FOR 11 A.M. ET Manufacturing activity in the Great Plains and Rocky Mountain region encompassed by Tenth Federal Reserve District continued expanding strongly in May. Plant managers generally remained optimistic about future factory activity, although some easing in expectations from previous months suggests some managers anticipate the recent rapid growth in manufacturing activity will cool to a more moderate pace. A summary of the May survey is attached to this press release. The Tenth Federal Reserve District encompasses Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico and western Missouri. For more information about the monthly manufacturing survey, contact Chad Wilkerson, Economic Research Department, and (816) 881-2869. The May manufacturing survey, as well as background information and results from past surveys, can be found on the Federal Reserve Bank of Kansas City’s web site, http://www.kc.frb.org

Survey of Tenth District Manufacturers by Chad R. Wilkerson Manufacturing activity in the Tenth Federal Reserve District continued to expand strongly in May. Year-over-year indexes for production, shipments, and new orders were down slightly from April highs but still quite elevated by historical standards. Year-over-year indexes for employment and capital spending also remained solid. Firms’ expectations for future factory activity fell somewhat from very high levels in April, but the six-month-ahead indexes still indicate most firms anticipate solid improvement heading forward. Nearly all of the month-over-month indexes increased in May, 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 monthly 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 was 35 in May, down only moderately from a near-record reading of 43 in April (Tables 1 & 2). The slightly easing in the production index in May appears to have been due to some slowdown in growth at durable goods manufacturers, as output at nondurable-goods-producing plants was up considerably from a year ago. Most other year-over-year indexes of factory activity were similar to their strong readings in April. The shipments and new orders indexes both eased slightly from record highs, while the employment and capital spending indexes were unchanged. The index for backlog of orders rose slightly, and the inventory indexes—for both raw materials and finished goods—also increased, with the index for raw materials inventories jumping to its first double-digit reading since mid-1998. Price indexes for both raw materials and finished goods edged down from record levels in April but remained very high by historical standards. The year-over-year raw materials price index fell from 82 to 75, while the finished goods price index eased from 37 to 34. The continued gap between the two indexes suggests a number of manufacturers continue to have difficulties raising output prices in the face of rising material costs. Plant managers generally remained optimistic about future factory activity in May, despite some easing in expectations from previous months. The future production index dropped from 46 in April to 36 in May but remained similar to the solid readings posted last summer. The future employment and capital spending indexes fell by amounts similar to the production index, while the future shipments and new orders indexes each declined by a more sizable 18 points. The easing in expectations suggests some managers anticipate the recent rapid growth in manufacturing activity will cool to a more moderate pace in the months ahead. The future price indexes also eased somewhat from record highs in April. Even so, nearly two-thirds of plant managers anticipate further increases in raw materials prices over the next six months and over one-third predict increases in finished goods prices.

Table1       Summary of Tenth District Manufacturing Conditions, May 2004   May vs. April (percent, not seasonally adjusted) May vs. Year Ago (percent) Expected in Six Months (percent, not seasonally adjusted) Plant Level Indicators Increase No Change Decrease Index* Increase No Change Decrease Index* Increase No Change Decrease Index*   Production 46 28 23 23 57 19 22 35 52 31 16 36 Volume of shipments 42 30 28 14 59 19 20 39 52 30 17 35 Volume of new orders 42 34 22 20 61 20 16 45 48 30 20 28 Backlog of orders 39 42 17 22 48 32 15 33 38 39 21 17 Number of employees 31 55 13 18 46 27 27 19 34 50 16 18 Average employee workweek 27 60 12 15 36 48 15 21 21 62 16 5 Prices received for finished product 27 66 5 22 48 38 14 34 35 57 7 28 Prices paid for raw materials 59 37 3 56 78 17 3 75 63 31 6 57 Capital expenditures   32 56 10 22 32 57 7 25 New orders for exports 9 74 9 0 16 63 13 3 15 70 7 8 Supplier delivery time 24 67 8 16 31 57 11 20 20 73 7 13 Inventories:            Materials 30 53 17 13 36 43 20 16 25 53 20 5      Finished goods 28 52 19 9 28 44 25 3 23 49 25 -2 * The diffusion index is calculated by subtracting the percentage of total respondents reporting decreases in a given indicator from the percentage of those reporting increases. Index values greater than zero generally suggest expansion, while values less than zero indicate contraction. When index values are closer to 100, the increases among respondents are more widespread. When index values are closer to -100, decreases are more widespread. Note: The May survey included 100 responses from plants in Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico, and western Missouri.

Table2 Historical Manufacturing Survey Indexes   May'03 Jun'03 Jul'03 Aug'03 Sep'03 Oct'03 Nov'03 Dec'03 Jan'04 Feb'04 Mar'04 Apr'04 May'04 Versus a Month Ago (not seasonally adjusted)   Production 1 15 8 20 31 28 6 1 17 14 27 28 23 Volume of shipments 6 22 7 16 30 21 -1 17 12 19 37 36 14 Volume of new orders 7 15 24 22 31 29 14 19 21 5 29 34 20 Backlog of orders 0 -1 5 17 2 5 8 1 7 2 10 28 22 Number of employees -1 -2 3 9 11 4 8 12 9 7 15 14 18 Average employee workweek -4 -2 4 18 25 5 8 -4 9 6 11 17 15 Prices received for finished product -7 -3 -5 -4 -1 -5 -2 3 9 5 17 28 22 Prices paid for raw materials 7 12 8 18 16 17 27 23 39 38 57 67 56 Capital expenditures n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a New orders for exports 2 4 6 7 2 5 -1 7 9 0 5 9 0 Supplier delivery time 0 -2 0 -1 5 4 8 10 4 6 15 27 16 Inventories:      Materials -25 -18 -6 -14 -4 5 4 -4 9 11 3 15 13 Inventories:      Finished goods 0 -10 -12 -11 -8 1 2 -3 -6 3 -6 1 9 Versus a Year Ago   Production -10 2 -7 8 17 34 31 35 24 27 31 43 35 Volume of shipments -10 1 6 11 20 36 29 29 27 32 34 45 39 Volume of new orders -2 6 16 22 31 40 41 45 30 38 29 52 45 Backlog of orders -13 -10 -3 3 12 10 21 28 22 25 21 31 33 Number of employees -33 -30 -17 -8 -13 -8 0 3 -2 12 14 19 19 Average employee workweek -13 -11 -1 9 17 17 18 21 20 19 16 24 21 Prices received for finished product -7 -4 -5 1 -1 -1 4 2 8 11 19 37 34 Prices paid for raw materials 32 31 31 37 30 39 40 49 48 50 64 82 75 Capital expenditures -4 -12 -3 0 12 3 14 7 6 9 18 22 22 New orders for exports 0 -5 -5 11 0 5 3 5 8 7 10 9 3 Supplier delivery time -1 -5 -3 -4 3 -4 8 5 6 7 20 26 20 Inventories:      Materials -26 -17 -14 -11 -7 -5 -8 9 -5 3 6 5 16 Inventories:      Finished goods -9 -5 -5 -12 -5 -7 -4 12 -7 4 -5 -2 3 Expected in Six Months (not seasonally adjusted)   Production 37 32 35 37 36 55 45 49 33 43 40 46 36 Volume of shipments 35 28 28 38 38 49 50 45 39 42 45 53 35 Volume of new orders 36 36 21 40 40 50 45 45 38 39 36 46 28 Backlog of orders 23 23 24 18 22 26 12 25 25 23 25 26 17 Number of employees 9 7 5 23 13 15 24 17 12 13 19 28 18 Average employee workweek 20 8 8 11 13 15 8 19 9 10 7 12 5 Prices received for finished product 11 5 3 10 10 9 14 17 15 25 24 39 28 Prices paid for raw materials 25 27 17 32 29 27 40 35 42 48 55 65 57 Capital expenditures 13 16 12 15 15 16 19 16 16 23 22 34 25 New orders for exports 9 6 5 14 13 11 10 14 17 17 15 14 8 Supplier delivery time 12 -3 5 2 8 1 6 2 3 5 14 11 13 Inventories:      Materials -12 -14 -8 0 4 4 -1 4 -9 -6 1 1 5 Inventories:      Finished goods -11 -9 0 3 -6 6 3 3 -12 -2 -10 -2 -2

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