Survey of Tenth
District Manufacturing
by Chad R. Wilkerson
Growth in manufacturing activity
in the Tenth Federal Reserve District was very modest in July, but activity
remained much stronger than a year ago, and expectations for future activity
were the highest in several months. Manufacturing price pressures edged
up in July but remained lower than in 2004. The July survey incorporates
seasonally-adjusted numbers for the first time, so this report will focus
more on month-to-month changes in factory activity than did past reports.
The net percentage of firms reporting month-over-month increases in production
in July was 1, down moderately from 11 in June and 7 in May, and the lowest
reading in over two years (Tables 1 & 2, Chart). More positively, the
year-over-year production index edged up from 38 to 42, similar to the generally
strong readings on that index from early 2004 to early 2005. While sample
sizes make it difficult to draw firm conclusions about individual states,
the data available suggest production rose solidly in Kansas, fell in western
Missouri, and was largely unchanged in other district states in July. Production
in all district states remained well above year-ago levels.
Several other month-over-month indexes of factory activity were also lower
in July than in June. The shipments index dropped from 18 to 7, the new
orders index fell from 17 to 10, and the workweek index edged down from 14
to 11. On the other hand, the employment index rose from 7 to 17, a reading
that has been surpassed only once since the 2001 recession. The index for
inventories of finished goods also rose moderately, posting a reading of
5 in July following negative readings in May and June.
Like production, most other year-over-year indexes of factory activity remained
quite strong. The shipments and new orders indexes were in the mid-40s,
down only slightly from all-time highs in the low 50s in 2004, and the employment
and capital spending indexes were around 20, solid readings by historical
standards. The inventory indexes—for both raw materials and finished goods—were
also around 20, higher than in the past two months.
The month-over-month price indexes both rose slightly in July after easing
in recent months. The raw materials price index increased from 18 to 27,
the highest reading since April but still considerably lower than readings
throughout 2004. The finished goods price index edged up from 5 to 10 but
also remained lower than readings from mid-2004 through spring 2005. The
year-over-year price indexes were virtually unchanged from June and still
very high by historical standards.
Plant managers’ expectations for future factory activity were stronger than
in recent months. The future production index rose from 33 to 40, the highest
since February, and the future shipments and orders indexes posted even larger
gains from June to July. The future employment index rose from 17 to 24,
the highest reading since last fall and especially encouraging given the
sizable increase in the month-over-month employment index in July. The future
capital spending index also edged up in July, though it was slightly lower
than readings in late 2004 and early 2005. The gap between the future price
indexes narrowed slightly. The future raw materials price index edged down
from 37 to 36, while the future finished goods price index rose from 23 to
27. Both future price indexes remained below their late 2004 peaks, but
the future finished goods price index remains quite high by historical standards,
suggesting some price pressures could persist at the wholesale level for
the remainder of the year.
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