Kansas City Fed: Manufacturing activity continued at a solid pace in December

Tenth District manufacturing activity continued at a solid pace in December, and producers were increasingly optimistic about future activity, the Federal Reserve Bank of Kansas City reported on December 30. Price indexes in the survey rose further, with a marked increase in raw materials prices.

The net percentage of firms reporting month-over-month increases in production in December was 21, unchanged from 21 in November and up from 10 in October (Tables 1 & 2, Chart). Specific industry activity was mixed, with the majority of durable firms reporting an increase in production while some nondurable firms noted a slight downturn. Most other month-over-month indicators improved somewhat from the previous month. The shipments and order backlog indexes climbed higher, and the new order index was basically flat. The employment index increased to its highest level in three years, while the new orders for exports index edged down from 11 to 7. The raw materials inventory index moved into positive territory, and the finished goods inventory index also inched higher.

Growth in year-over-year factory activity increased in December. The production index improved from 27 to 32, and the shipments, new orders, and order backlog indexes also edged up. The employment index rose for the second straight month to its highest level in nearly 3 years, and the capital expenditures index increased from 9 to 19. Both inventory indexes rose further from last month, after nearly two years of negative readings.

Future factory indexes improved considerably from the previous month. The future production index jumped from 23 to 41, and the future shipments, new orders, and order backlog indexes also rose. The future employment index increased from 13 to 27, and the future new orders for export index also edged higher. The future capital expenditures index improved from 12 to 22, a three-year high. The raw materials inventory index moved into positive territory for the first time since April, and the finished goods inventory index also increased from -5 to 0.

Price indexes continued to rise. The month-over-month finished goods price increased from 3 to 18, and the raw materials price index jumped from 35 to 54. The year-over-year finished goods price index climbed higher, and the raw materials price index edged up slightly from 62 to 67. The future raw materials price index recorded its highest level since mid-2008, and the future finished goods price index also increased, as slightly more firms plan to pass recent cost increases through to customers.

Table1       Summary of Tenth District Manufacturing Conditions, December 2010   December vs. November (percent)1 December vs. Year Ago (percent)1 Expected in Six Months (percent)1 Plant Level Indicators Increase No Change Decrease Diff Index2 SA Index3 Increase No Change Decrease Diff Index2 Increase No Change Decrease Diff Index2 SA Index3   Production 38 33 27 11 21 55 21 23 32 56 27 15 40 41 Volume of shipments 37 31 28 8 20 57 15 24 33 54 23 19 35 33 Volume of new orders 34 38 25 9 24 52 24 21 31 47 33 17 29 28 Backlog of orders 26 46 24 2 12 41 34 21 20 37 41 18 18 16 Number of employees 23 59 15 7 14 40 31 27 12 41 42 15 25 27 Average employee workweek 24 57 16 7 12 38 39 20 18 31 47 20 11 11 Prices received for finished product 18 72 8 10 18 40 37 17 23 44 44 10 34 35 Prices paid for raw materials 44 50 2 41 54 75 14 7 67 72 22 2 69 73 Capital expenditures   36 44 16 19 35 48 12 22 22 New orders for exports 9 71 6 2 7 17 62 7 10 21 61 3 17 16 Supplier delivery time 9 84 2 6 7 23 65 5 17 12 83 1 10 10 Inventories:            Materials 23 58 16 6 11 33 36 27 5 25 50 23 2 7      Finished goods 22 54 18 3 5 30 41 24 6 19 53 21 -1 0 1Percentage may not add to 100 due to rounding. 2Diffusion Index. The diffusion index is calculated as the percentage of total respondents reporting increases minus the percentage reporting declines. 3Seasonally Adjusted Diffusion Index. The month vs. month and expected-in-six-months diffusion indexes are seasonally adjusted using Census X-12. Note: The December survey included 108 responses from plants in Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico, and western Missouri.

Table2 Historical Manufacturing Survey Indexes   Dec'09 Jan'10 Feb'10 Mar'10 Apr'10 May'10 Jun'10 Jul'10 Aug'10 Sep'10 Oct'10 Nov'10 Dec'10 Versus a Month Ago (seasonally adjusted)   Production 7 13 19 18 24 5 3 14 0 14 10 21 21 Volume of shipments 3 9 14 17 27 -3 1 12 -6 15 6 12 20 Volume of new orders 0 9 11 12 15 -2 0 9 -13 9 16 25 24 Backlog of orders -4 0 -5 7 11 -3 -9 -2 -16 4 4 8 12 Number of employees -1 2 -4 3 5 1 -1 5 -2 -2 -1 10 14 Average employee workweek 0 4 -3 1 6 9 -2 1 -6 2 2 5 12 Prices received for finished product -1 0 0 5 5 -1 -14 -9 -4 -1 2 3 18 Prices paid for raw materials 22 42 45 42 53 37 14 14 14 25 25 35 54 Capital expenditures n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a New orders for exports 5 6 0 4 5 0 3 0 -1 10 0 11 7 Supplier delivery time 8 8 12 11 10 15 5 0 3 4 1 11 7 Inventories:      Materials -12 -7 -1 3 -7 6 -4 -1 6 -1 -10 0 11 Inventories:      Finished goods -1 0 0 -7 -9 6 1 0 2 5 -13 2 5 Versus a Year Ago (not seasonally adjusted)   Production -30 -10 -9 -1 14 16 9 25 18 22 7 27 32 Volume of shipments -31 -10 -11 -5 15 13 6 25 18 25 12 29 33 Volume of new orders -25 -11 -8 -3 19 23 6 23 16 20 8 28 31 Backlog of orders -32 -14 -19 -13 -3 0 -5 6 3 4 0 10 20 Number of employees -48 -39 -29 -31 -18 -18 -12 -10 -8 -2 -8 6 12 Average employee workweek -32 -20 -11 -10 -1 8 -4 5 9 6 -1 10 18 Prices received for finished product -10 -1 -4 7 7 9 9 7 7 11 18 15 23 Prices paid for raw materials 6 25 38 55 58 63 53 50 51 48 58 62 67 Capital expenditures -31 -14 -15 -8 -5 -5 -5 4 -9 0 0 9 19 New orders for exports 0 6 7 2 7 8 7 14 12 12 7 19 10 Supplier delivery time 0 -1 2 10 8 10 0 3 4 7 7 16 17 Inventories:      Materials -35 -18 -20 -17 -12 -14 -14 -9 -5 -3 -3 0 5 Inventories:      Finished goods -12 -14 -14 -11 -9 -8 -4 -5 -8 -2 -7 0 6 Expected in Six Months (seasonally adjusted)   Production 17 35 24 33 22 32 21 23 10 23 29 23 41 Volume of shipments 15 35 32 36 21 33 24 22 9 19 29 23 33 Volume of new orders 17 25 25 27 28 31 23 23 16 28 26 20 28 Backlog of orders 7 12 5 16 9 16 12 11 4 23 7 11 16 Number of employees 2 9 18 20 18 14 9 1 2 7 7 13 27 Average employee workweek 8 7 13 10 4 13 2 0 -2 6 1 0 11 Prices received for finished product 8 12 15 19 17 17 11 9 7 10 18 27 35 Prices paid for raw materials 31 60 59 55 61 45 40 26 30 40 47 61 73 Capital expenditures 0 14 3 5 11 5 -4 -3 -4 8 4 12 22 New orders for exports 11 13 12 5 11 7 5 5 7 12 14 15 16 Supplier delivery time 10 6 6 9 15 9 0 8 6 3 9 10 10 Inventories:      Materials -2 3 6 4 3 -10 -10 -8 -6 -2 -5 -1 7 Inventories:      Finished goods 2 2 1 -4 0 -6 -11 -4 0 -3 -16 -5 0

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