Kansas City Fed: Manufacturing activity grew at a much slower rate in May

Tenth District manufacturing activity grew at a much slower rate in May than in previous months, but producers were more optimistic about future activity. Price indexes were mixed, with some slowing in the rate of materials price increases and a flattening of finished goods prices. However, a number of firms continued plans to raise finished goods prices in coming months. This is according to a new report released by the Federal Reserve Bank of Kansas City.

The net percentage of firms reporting month-over-month increases in production in May was 5, down from 24 in April and 18 in March (Tables 1 & 2, Chart). Production growth slowed at both durable and nondurable-goods-producing plants. Most other month-over-month indicators also edged down from April levels. The shipments, new orders, and order backlog indexes all moved into negative territory, and the employment index eased after reaching a two-year high last month. The new orders for exports index dropped from 5 to 0, while the supplier delivery time index climbed higher. Both inventory indexes increased into positive territory.

Despite slower month-to-month growth, year-over-year factory indexes showed further improvement in May, with several indexes reaching pre-recession levels. The production index edged up from 14 to 16, and the new orders, order backlog, and new orders for exports indexes also rose to their highest levels since 2007. In contrast, the shipments index decreased modestly from 15 to 13, and the employment and capital expenditure indexes remained unchanged. The raw materials inventory index moderated slightly, while the finished goods inventory index inched higher.

Future factory activity indexes rebounded after falling slightly last month. The future production index jumped from 22 to 32, and the future shipments, new orders, and order backlog indexes also increased. Meanwhile, the future employment index eased from 18 to 14, and the future capital expenditures and new orders for exports indexes also fell somewhat. Both future inventory indexes fell to their lowest level in over six months.

Price indexes were mixed in May. The month-over-month raw materials price index decreased from 53 to 37, and the finished goods price index fell into negative territory. The year-over-year raw materials price edged up from 58 to 63, and the finished goods price index also inched higher. The future raw materials price index eased from 61 to 45, while the future finished goods price index was unchanged at 17, as a moderate number of firms continue to plan on passing recent cost increases through to customers.


 

Table1       Summary of Tenth District Manufacturing Conditions, May 2010   May vs. April (percent)1 May 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 33 47 19 13 5 47 21 30 16 48 31 19 29 32 Volume of shipments 30 43 25 4 -3 43 24 30 13 50 28 19 31 33 Volume of new orders 30 45 23 6 -2 47 26 24 23 47 35 14 32 31 Backlog of orders 21 56 19 1 -3 31 32 32 0 32 47 15 16 16 Number of employees 23 61 14 8 1 23 33 42 -18 30 52 17 13 14 Average employee workweek 24 62 11 13 9 31 45 23 8 29 53 16 13 13 Prices received for finished product 14 71 13 0 -1 31 46 22 9 29 60 9 19 17 Prices paid for raw materials 49 42 5 43 37 74 12 10 63 60 27 9 50 45 Capital expenditures   25 40 31 -5 23 54 19 4 5 New orders for exports 8 71 8 0 0 18 60 9 8 19 59 9 9 7 Supplier delivery time 17 77 3 14 15 21 63 10 10 15 78 4 11 9 Inventories:            Materials 28 52 18 9 6 23 38 37 -14 19 48 29 -9 -10      Finished goods 23 57 14 8 6 20 46 28 -8 19 48 28 -8 -6 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 May survey included 121 responses from plants in Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico, and western Missouri.

Table2 Historical Manufacturing Survey Indexes   May'09 Jun'09 Jul'09 Aug'09 Sep'09 Oct'09 Nov'09 Dec'09 Jan'10 Feb'10 Mar'10 Apr'10 May'10 Versus a Month Ago (seasonally adjusted)   Production -2 1 0 -5 12 5 15 7 13 19 18 24 5 Volume of shipments -1 4 4 -13 8 0 8 3 9 14 17 27 -3 Volume of new orders 2 8 6 -8 7 7 10 0 9 11 12 15 -2 Backlog of orders -18 -1 -11 -17 -10 -1 0 -4 0 -5 7 11 -3 Number of employees -15 -14 -15 -10 -3 -4 0 -1 2 -4 3 5 1 Average employee workweek -14 2 -13 -9 8 -3 4 0 4 -3 1 6 9 Prices received for finished product -17 -14 -16 -12 -6 -6 1 -1 0 0 5 5 -1 Prices paid for raw materials -17 -9 -7 0 9 12 21 22 42 45 42 53 37 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 -7 -2 0 0 2 3 2 5 6 0 4 5 0 Supplier delivery time -6 -3 -4 0 3 3 11 8 8 12 11 10 15 Inventories:      Materials -19 -22 -23 -20 -15 -4 -6 -12 -7 -1 3 -7 6 Inventories:      Finished goods -11 -12 -14 -10 -7 2 -6 -1 0 0 -7 -9 6 Versus a Year Ago (not seasonally adjusted)   Production -52 -44 -50 -60 -46 -40 -31 -30 -10 -9 -1 14 16 Volume of shipments -53 -45 -50 -57 -43 -40 -28 -31 -10 -11 -5 15 13 Volume of new orders -47 -49 -48 -57 -43 -37 -16 -25 -11 -8 -3 19 23 Backlog of orders -53 -47 -50 -52 -48 -44 -24 -32 -14 -19 -13 -3 0 Number of employees -65 -54 -57 -66 -56 -47 -49 -48 -39 -29 -31 -18 -18 Average employee workweek -54 -44 -41 -50 -40 -33 -28 -32 -20 -11 -10 -1 8 Prices received for finished product -8 -11 -24 -27 -14 -14 -12 -10 -1 -4 7 7 9 Prices paid for raw materials -25 -20 -27 -17 -9 -5 -12 6 25 38 55 58 63 Capital expenditures -48 -28 -24 -23 -24 -25 -26 -31 -14 -15 -8 -5 -5 New orders for exports -26 -17 -14 -16 -7 -6 -8 0 6 7 2 7 8 Supplier delivery time -19 -17 -13 -8 1 -2 -3 0 -1 2 10 8 10 Inventories:      Materials -38 -38 -43 -37 -37 -37 -34 -35 -18 -20 -17 -12 -14 Inventories:      Finished goods -20 -23 -23 -25 -17 -14 -24 -12 -14 -14 -11 -9 -8 Expected in Six Months (seasonally adjusted)   Production 3 11 9 19 17 24 32 17 35 24 33 22 32 Volume of shipments 0 8 6 12 12 18 31 15 35 32 36 21 33 Volume of new orders 2 15 14 19 17 26 23 17 25 25 27 28 31 Backlog of orders -9 0 6 7 0 13 16 7 12 5 16 9 16 Number of employees -13 0 -11 -7 1 4 8 2 9 18 20 18 14 Average employee workweek -11 3 -4 0 5 5 16 8 7 13 10 4 13 Prices received for finished product -13 4 -10 -3 1 0 5 8 12 15 19 17 17 Prices paid for raw materials -2 13 1 23 20 28 32 31 60 59 55 61 45 Capital expenditures -11 -13 -12 -2 -8 -5 -1 0 14 3 5 11 5 New orders for exports -3 2 6 6 7 10 9 11 13 12 5 11 7 Supplier delivery time -5 -7 -7 -2 4 -1 6 10 6 6 9 15 9 Inventories:      Materials -24 -18 -18 -13 -12 -6 -3 -2 3 6 4 3 -10 Inventories:      Finished goods -20 -9 -12 -15 -11 -7 -5 2 2 1 -4 0 -6