Survey of Tenth District Manufacturing
by Chad R. Wilkerson
Manufacturing activity in the Tenth Federal Reserve District continued to expand strongly in September. The year-over-year indexes for production, shipments, and new orders edged down but remained near all-time highs, and the capital spending index rose sharply. The year-over-year price indexes were virtually unchanged from last month and still quite high by historical standards. Expectations for future factory activity were still very strong, and the future finished goods price index rose markedly after dropping in August. Most month-over-month indexes increased, 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 was 48 in September, down slightly from 50 in August but still near the all-time high of 51 reached in June (Tables 1 & 2). The slight easing in the production index was due to some slowdown in growth at nondurable goods-producing firms, as year-over-year output at durable goods-producing plants rose moderately in September. While sample sizes make it more difficult to draw firm conclusions about individual states, the data available suggest that production remained well above year-ago levels in all seven district states.
Most other year-over-year indexes of factory activity were similar to their strong August readings. Like the production index, the shipments and new orders indexes both eased slightly but remained near all-time highs. On the other hand, the employment index edged higher and capital spending index jumped from 16 to 30, its highest reading since the first time the Kansas City Fed survey was conducted in October 1994. The supplier delivery time index actually did reach a record high, and the inventory indexes—for both raw materials and finished goods—continued to move further into positive territory after posting negative readings through much of the 2000 to 2003 period.
The year-over-year price indexes were virtually unchanged in September after easing slightly in August from July’s record highs. The year-over-year raw materials price index was 72, while the finished goods price index was 38. The continued high level of the year-over-year finished goods index was due mainly to price increases for products with high steel or petroleum content.
Plant managers continued to be quite optimistic about future factory activity. The six-month-ahead production index was unchanged at 39, and the future shipments and new orders indexes eased only slightly. The future employment index experienced a somewhat larger drop-—-from 30 to 23—--but was still higher than in May, June, and July. Meanwhile, the future capital spending index rose from 19 to 25 after easing slightly in recent months. The gap between the future price indexes diminished somewhat. The future raw materials price index edged down from 55 to 54, but the future finished goods price index jumped from 20 to 30, erasing nearly all the drop in this index in August. Unlike the year-over-year finished goods price index, which is being held up by higher prices among producers of steel- and petroleum-based products, the future finished goods price index rose across virtually all industries in September.
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