Factory activity rose moderately in August
Tenth District manufacturing activity rose moderately from July but remained below year-ago levels, while expectations for future activity expanded further (Chart 1, Tables 1 & 2). Prices paid for raw materials increased and prices received for finished goods were slightly positive. District firms expected prices for both finished goods and raw materials to expand more in the next six months.
The month-over-month composite index was 14 in August, moderately higher than 3 in July and 1 in June (Tables 1 & 2). The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. Non-durable goods factories continued to drive the uptick in recent activity, especially food and beverage manufacturers. Activity at durable goods plants grew slightly. The majority of month-over-month indexes were positive, indicating continued expansion. Production, shipments, and new orders grew considerably compared to a month ago. Only the month-over-month finished goods inventories index was still negative, but it declined at a slower pace in August. Most year-over-year factory indexes remained negative in August, but slightly less negative than in previous months. The future composite index expanded further in August to 19, up from 14 in July.
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This month contacts were asked special questions about the impact of government stimulus and unemployment benefits. Nearly two-thirds of contacts reported that government stimulus programs positively contributed to their business’s performance in the past three months (Chart 2). Many firms noted the helpfulness of Paycheck Protection Program (PPP) loans in retaining staff, and around half of firms indicated their business outlook was dependent on additional government support of some sort. At the same time, almost 60% of contacts indicated the CARES Act extra $600/week or recent $400/week boost in unemployment benefits created some or significant difficulties in bringing furloughed or laid-off employees back to work (Chart 3). More than 40% of firms also reported difficulty sourcing inputs, especially from international suppliers.
“Difficulty hiring new employees - entry level employees can earn more on unemployment.”
“No employees have been laid off or furloughed so far. Production volume is lower and the factory has been slowed down, but we hope to hold on to all employees if possible.”
“We could not recruit any new employees until the extra $600/week expired. It has gotten a little better when it went to $400/week.”
“I think the majority of our employees would rather come to work and earn a pay check than rely on the increased unemployment benefits.”
“We believe [employment] will improve now that the additional unemployment benefit has expired. For our area, $600/week was outside of the price we are able to afford for manufacturing employees.”
“Some materials are taking longer to receive than normal and seeing some good price increases for high demand products.”
“Materials, shipments have been majorly delayed from our U.S. vendors due to their parts not coming from overseas… our machine assembly line is now shut down until they are received”
“We had a solid backlog when COVID-19 hit, but we have worked through the backlog and have seen a large decrease in new orders.”
“Our April business was off 60%, May off about 15%, June & July off about 8 - 10%. Without the stimulus we would have had significant layoffs in April/May. Lately, business has been stable, off a bit in areas to be expected with COVID, but stable.”
“PPP assisted in keeping our staff at the factory on board and working on fulfilling orders.”
“Spending by the market and government for COVID-19 related testing has increased our orders.”
“Our business went up with the virus so the [government] stimulus had no effect for us.”
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