Survey of Tenth District Manufacturing
by Chad R. Wilkerson
Manufacturing activity in the Tenth Federal Reserve District remained well above year-ago levels in May, but expectations for future factory activity were not as strong as in the recent past. The year-over-year production index edged up last month, and the year-over-year shipments and new orders indexes also rose. However, the six-month-ahead production index fell moderately, reaching its lowest level in over two years. Manufacturing price pressures eased slightly, but a sizeable number of plants still plan to raise output prices in the months ahead. Most month-over-month indexes in the survey rose in May, 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 35 in May from 32 in April (Tables 1 & 2). While still high by historical standards, these readings from the past two months were moderately lower than readings posted throughout most of the past year. Year-over-year production indexes remained at or above zero throughout the district and were highly positive for both durable- and nondurable-goods producing plants.
Other year-over-year indexes of factory activity were mixed but still generally solid in May. The shipments index rose considerably after falling in each of the past four months, and the new orders index also jumped after easing in March and April. The employment and workweek indexes were largely unchanged from the solid readings of the past two months. On the other hand, the capital spending index fell somewhat, and the inventory indexes dropped sharply after reaching ten-year highs in April. The index for new orders for exports also fell back into single digits for the first time since last fall.
The year-over-year price indexes remained high but were down somewhat from the previous month, indicating some easing in manufacturing price pressures. The raw materials price index fell from 79 to 70, the lowest reading since early 2004 but still very high by historical standards. The finished goods price index also fell moderately. After reaching an all-time high of 59 in April, the index fell to 46 in May, its lowest reading in five months. Like the raw materials price index, however, the finished goods price index was still quite high by historical standards.
Plant managers’ optimism about future factory activity eased in May. The six-month-ahead production index dropped from 41 to 31, and the future shipments and new orders indexes also fell to the low 30s. The future employment index increased somewhat, rising from 11 to 16, but was down from readings in late 2004. The future capital spending index edged down for the second straight month, but was still relatively high by historical standards. The future price indexes both fell by 8 points, suggesting that firms expect a further modest easing in manufacturing price pressures. However, a net 31 percent of firms still expect to raise output prices over the next six months.
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