Survey of Tenth District Manufacturing
by Chad R. Wilkerson
Manufacturing activity in the Tenth Federal Reserve District strengthened in December. The year-over-year indexes for production, shipments, new orders, and employment were at or near all-time highs, and expectations for future production were as strong as in recent months. The year-over-year and future price indexes were largely unchanged and still near record highs. The month-over-month indexes in the survey were mixed in December. However, the monthly data are not seasonally adjusted, so caution must be taken in basing analyses on month-to-month comparisons. For example, the month-over-month production index’s lowest reading in each year since 2001 has been reached or matched in December.
The net percentage of firms reporting year-over-year production increases rose to 50 in December, up from 44 in November and just slightly below the all-time high of 51 reached in June 2004 (Tables 1 & 2). The moderate improvement came primarily at durable-goods-producing plants, as the production index for nondurable-goods-producing plants was up only slightly from November. 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 rose to or near all-time highs in December. The new orders index matched its record high of 52 from August 2004, and the shipments index rose from 47 to 53, only slightly below its August peak. The employment index edged up from 28 to 30, its highest reading since 1995, and the workweek index rose somewhat after easing in each of the previous five months. The new orders for exports index rose to 12, the highest level since early 2000. The capital spending index eased slightly but remained similar to readings in recent months.
The year-over-year price indexes were virtually unchanged from November. The raw materials price index edged up from 74 to 76, down only slightly from the all-time high of 82 reached in April and July 2004. The finished goods price index remained flat at 40, just slightly below the record high of 42 posted in July. The continued gap between the two price indexes suggests some firms still continue to have difficulties passing cost increases through to customers.
Plant managers’ expectations for future factory activity remain high. The six-month-ahead production index was 41, similar to its strong readings in each of the past five months. The future shipments and new orders indexes also remained above 40. The future employment and capital spending indexes edged down but remained around 20—--relatively high levels by historical standards. The future price indexes also eased slightly but remained similar to readings in recent months. Finally, the gap between the two future price indexes, after closing somewhat in November, remained virtually unchanged in December, suggesting little expected change in pricing power in the months ahead.
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