Survey of Tenth District Manufacturing
by Chad R. Wilkerson
Manufacturing activity in the Tenth Federal Reserve District grew solidly in March. The year-over-year production index edged higher, and employment and capital spending continued to increase. Price pressures persisted, as the year-over-year and future price indexes remained at or near record highs. All of the month-over-month indexes in the survey rose for the second month in a row, 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 edged up to 44 in March from readings of 43 in February and 37 in January (Tables 1 & 2). In March, a slight improvement in the production index among durable-goods-producing plants offset a slight easing among nondurable-goods-producing plants, though production remained well above year-ago levels for both categories of firms. While sample sizes make it more difficult to draw firm conclusions about individual states, the data available suggest that production was well above year-ago levels in all district states.
Other year-over-year indexes of factory activity generally remained solid. The capital spending index continued to edge higher, rising from 26 to 30, and the employment index rose from 15 to 18. On the other hand, the shipments and new orders indexes fell somewhat from readings in recent months, as did the index for average employee workweek. The inventory indexes were both relatively high by historical standards. The index for materials inventories rose nearly back to its ten-year-high of 25 set in January, while the finished goods inventory index was unchanged at 17.
The year-over-year price indexes diverged only slightly from February’s high levels. The raw materials price index edged up for the fourth straight month, from 83 to 86, to post another record high. The finished goods price index edged down for the second straight month from the record high posted in January, falling from 54 to 51. The slight widening in the gap between the two indexes followed some narrowing earlier in the year and suggests some firms may have encountered difficulties raising prices. However, even though the finished goods price index has eased the last two months, the reading in March was still the third-highest on record.
Plant managers’ expectations for future factory activity in March were somewhat lower than in recent months. The six-month-ahead production index fell from 48 to 33, its lowest reading since January 2004, and the future shipments and employment indexes also fell to their lowest levels in over a year. More positively, the future new orders index was virtually unchanged from the solid readings of the previous four months. In addition, the future capital spending index increased for the third straight month, rising to its highest level since April 2004. The future price indexes showed a similar pattern as the year-over-year price indexes. The future raw materials price index edged up for the third straight month, rising from 61 to 63. The future finished goods price index fell from a record 42 in February to 35 in March, a similar reading as in the three months prior to February. The slight widening in the gap between the two future price indexes suggests more firms than a month ago anticipate difficulties in passing cost increases through to customers. Still, the future finished goods price index remains very high by historical standards, indicating that a sizable number of firms plan to continue raising prices.
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