Factory activity eased slightly in October
Tenth District manufacturing activity eased slightly in October, and expectations for future activity inched lower but remained slightly positive (Chart 1). The month-over month price index for raw materials declined at a slower rate, while the price index for finished products expanded slightly. District firms expected prices to increase over the next 6 months.
The month-over-month composite index was -3 in October, down slightly from -2 in September, but above -6 in August (Table 1). The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. The decline in district manufacturing activity continued to be driven by slower activity at durable goods plants, especially from decreases in nonmetallic mineral products, primary metal, fabricated metal products, machinery, computer and electronic products, and transportation equipment manufacturing. Most month-over-month indexes declined in October, especially for the new orders index. However, the production index remained positive, and the supplier delivery time index inched higher. Year-over-year factory indexes were somewhat mixed in October, but the composite index was again unchanged at -1. The future composite index remained positive, but eased from 5 to 2, the lowest future composite index since March 2016.
This month contacts were asked special questions about capital investment decisions and difficulties hiring employees. Over 43 percent of regional manufacturing contacts indicated that the need to replace existing plant and equipment was the primary driver for capital investment decisions (Chart 2). Nearly 38 percent of contacts reported future demand expectations was the primary driver for investment decisions, and another 13 percent said economic/political uncertainty was the main factor. In regards to filling positions, 48 percent of firms said they had difficulty hiring workers over the past three months because of a lack of qualified applicants (Chart 3). Just over 26 percent of contacts noted they did not have difficulty hiring workers over the past three months.
“Trade war with China is really hurting our export business, and we’ve had to outsource outside the U.S. to retain only about half of our traditional customer demand in China. Besides the lost revenue, profit margins are half due to outsourcing the production.”
“We are seeing some quote opportunities with companies looking to source their needs in the U.S. versus China.”
“Less sales to China means less manufacturing.”
“Backlog dropping like a rock in past several months. Production teammates seeing their hours worked each week down by 30% to 40%. Tough market right now, competitors reducing prices way below what we are currently willing to go. Concentrating on cost reduction and taking care of what we have control over.”
“Don’t get too excited about our production coming up. We took our inventory down to very low levels and our big shipping time is in the spring. We are just building back up at this point. We are still very sluggish.”
“Things have been slower for several months, but not bad. Bookings have slowed although it is unknown whether it is in response to short term volatility in the cost of steel, companies playing wait and see, or a significant shift in the quality of the industrial economy.”
“Although we have had a very good year... bookings, shipments, and production has been pretty flat for the last 2 years.”
“We are building and automating a new factory and reduced our head count in anticipation of the move. So those still on board are working more prior to our move.”
“Business is good, having trouble finding people.”
“Still looking for qualified workers that show up and stay a full day.”
“Because of the shortage with labor we have been working more overtime.”