Survey of Tenth District Manufacturing
by Chad R. Wilkerson
The manufacturing expansion in the Tenth Federal Reserve District continued at a solid pace in November, and expectations for future factory activity remained strong. The year-over-year indexes for production, shipments, and new orders rose slightly after easing in October, and the employment index edged up to a nine-year high. Price pressures also persisted, as the year-over-year indexes for both raw materials prices and finished goods prices remained near historical highs, and more firms than in recent surveys expect to be able to pass cost increases through to customers. Most month-over-month indexes increased in November, 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 rose to 44 in November after falling to 41 in October (Tables 1 & 2). The slight improvement came at nondurable-goods-producing plants, as the year-over-year production index for durable-goods-producing plants fell slightly for the second month in a row. 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 district states.
Similar to the production indexes, many other year-over-year indexes of factory activity rebounded after easing somewhat in October. The shipments index rose from 42 to 47 and the new orders index edged up from 42 to 44. The employment index rose from 25 to 28, the highest reading of that index since 1995. The capital spending, backlog, and export indexes also edged higher. By contrast, the workweek index and supplier delivery time indexes both eased slightly. The inventory indexes were mixed. The raw materials inventory index eased slightly, while the index for inventories of finished goods rose modestly.
The year-over-year price indexes remained very similar to their high readings of the previous three months. The raw materials price index, at 74, was within 3 points of its readings in August, September, and October and down only moderately from its record of 82 reached in both April and July of this year. Likewise, the finished goods price index, at 40, was within three percentage points of its readings from the past three months, as well as its record high of 42 set in July.
Plant managers continued to be quite optimistic about future factory activity. The six-month-ahead production index, at 38, was high by historical standards and virtually unchanged from its readings of the previous four months. Moreover, the future new orders index increased moderately, to 44, its highest reading since June. The future employment index also remained above 20 for the fourth month in a row, and the future capital spending index was very similar to its solid readings of recent months. The future price indexes suggested a possible increase in pricing power heading forward, as the gap between the raw materials price index and the finished goods price index narrowed somewhat. The future raw materials price index was unchanged at 59, while the future finished goods price index rose from 30 to 36, the second-highest reading on record.
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