Survey of Tenth District Manufacturing
by Chad R. Wilkerson
The manufacturing expansion in the Tenth Federal Reserve District slowed somewhat in October, but expectations for future factory activity remained strong. Though still high by historical standards, the year-over-year indexes for production, shipments, and new orders all fell to their lowest levels since the spring. Expectations for future factory activity, however, remained as strong as in recent months. The year-over-year price indexes both edged up to remain near historical highs, and firms generally expect continued price pressures heading forward. The month-over-month indexes were mixed compared with September, 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 41 in October, down from 48 in September and the lowest reading since May (Tables 1 & 2). Year-over-year production growth fell slightly at both durable- and nondurable-goods-producing plants. While sample sizes make it more difficult to draw firm conclusions about individual states, it appears the largest slowdowns in production growth occurred in Colorado and Nebraska. Production remained well above year-ago levels in all district states.
Similar to production, most other year-over-year indexes of factory activity experienced some falloff in October. The shipments index fell from 51 to 42, the lowest reading since May, and the new orders index fell from 50 to 42, the lowest reading since March. The employment index eased slightly but was identical to the August reading, and the capital spending index dropped but remained slightly higher than in August. The supplier delivery time index also fell after reaching an all-time high in September. The inventory indexes—for both raw materials and finished goods—were largely unchanged and remained as high as at any time in the past four years.
The year-over-year price indexes both edged up in October and were near July’s record highs. The raw materials price index rose from 72 to 77, marking the seventh consecutive month of a reading above 70. The finished goods price index increased from 38 to 41, just barely below July’s high of 42. Prices were up from a year ago for most heavy steel- and petroleum-using plants, but also for a majority of other types of plants as well.
Plant managers remained quite optimistic about future factory activity. The six-month-ahead production index was unchanged at 39 for the second month in a row, and the future shipments and new orders indexes were similar to readings in the mid- to high-30s of the previous three months. The future capital spending index was unchanged at 25, while the future employment index edged up from 23 to 26 but was down slightly from its August peak. The future raw materials price index rose slightly, while the future finished goods price index was unchanged after rising considerably in September, suggesting firms expect continued price pressures for the foreseeable future.
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