Fed Beige Book reports modest improvement

Nine out of 12 Federal Reserve Districts showed modest improvement in economic activity according to the latest Beige Book summary from the Fed.

Manufacturing activity strengthened in most regions, particularly in the high-tech equipment, automobile, and metal industries.

Read manufacturing highlights from each district below or click here for the full report.

First District - Boston
Manufacturing demand continued to strengthen in early 2010, in some cases by more than anticipated just a few months earlier. Manufacturers of semiconductors and related equipment report sharp snap-backs in orders, resulting in dramatic increases in backlogs, as well as some component shortages and production bottlenecks. 

Most contacts plan to hold domestic headcounts relatively steady or increase them somewhat in coming months. Most manufacturing respondents are planning to increase capital spending in 2010. Many mention that they will be expanding their capacity to perform R&D or produce new products.

Manufacturers and related services providers describe themselves as either hopeful or optimistic about business conditions over the coming six to 12 months.

Second District - New York
Many manufacturing contacts also indicate plans to increase employment and capital spending in the months ahead. Manufacturing firms in the District note some further improvement in business conditions, along with modest increases in employment. Contacts remain optimistic about the general business outlook and anticipate widespread increases in new orders, as well as increased hiring and capital spending.

Non-manufacturing contacts overall report continued modest improvement in business and a slight pickup in employment for the first time since the start of the recession; contacts remain mostly optimistic about the general business outlook and a growing proportion plan to expand capital spending and employment in the months ahead. Both manufacturers and other firms report increasingly widespread rises prices paid but little or no change in selling prices.

Third District - Philadelphia
Third District manufacturers reported increases in shipments and new orders, on balance, from January to February, with the number of firms posting gains exceeding the number recording declines by a fair margin. The improvement was also widespread, as most of the major manufacturing industries in the region posted increases.

Third District manufacturers expect business conditions to improve during the next six months, on balance. Among the firms polled in February, about half expect increases in new orders and shipments through the middle of the year; about one-tenth expect decreases. Capital spending plans among area manufacturers have improved since the last Beige Book. About one-third of the firms polled in February plan to increase expenditures for new plant and equipment, although one-half plan to maintain level spending. Despite the general improvement in current and expected conditions in the region's manufacturing sector, some firms said further gains could be limited by continuing tightness in credit markets and adverse developments in regard to taxes and regulations.

Fourth District - Cleveland
Reports from District factories showed that production was largely stable or rose moderately during the past six weeks, with a majority of our contacts citing an increase in new orders. Although no end market is particularly strong, rising volume was attributed primarily to defense and energy.

Manufacturers reported that inventories are in line with demand, while capacity utilization is beginning to improve. In general, capital investments continue on the low side. Nonetheless, a number of contacts said that they have increased their capital budgets for 2010; others commented that if new orders continue to rise, they are likely to spend more on capital projects later in the year.

Fifth District - Richmond
District manufacturing activity was flat to up in February, with optimism for the near-term remaining guarded. Contacts on balance reported that shipments and backlogs held steady, while new orders posted solid increases.

Several manufacturers reported production disruptions during the snow storms, but were able to make up the losses by working overtime and during holidays. Although most contacts reported that both raw materials and finished goods prices increased at a slower pace since our last report, lumber prices were higher across the board due to weather-related supply effects.

Sixth District - Atlanta
Recent reports from Sixth District manufacturers revealed that new orders rose, while the decline in production moderated. Over half of the manufacturers contacted expect production levels to rise in the coming months. With regard to finished inventory, contacts continued to report ongoing reductions.

Transportation contacts reported that freight demand modestly improved in early 2010. Regional rail loadings in January and early February were above year-ago levels, with autos, chemicals, metals, and some construction-related shipments posting noticeable gains.

Seventh District - Chicago
Manufacturing activity gradually improved in January and February. Orders increased, primarily reflecting the restocking of inventories. In contrast, contacts noted that order backlogs were declining and customers were hesitant to place new bookings much beyond the first quarter. The auto industry remained a strong source of growth in manufacturing, as did pharmaceuticals. Steady improvement was also noted in steel and heavy machinery, particularly sales of mining and agriculture equipment.

Manufacturers with ties to residential or commercial construction were much less positive, and did not expect to see much of a recovery in 2010.

Eighth District - St. Louis
Manufacturing activity increased since our previous survey. More contacts reported plans to expand or start new operations and increase employment than contacts who reported that order volumes remain slow and that they have no plans to expand employment. Several firms in auto parts manufacturing reported an increase in new orders and are expanding operations and hiring new employees accordingly. Firms in aerospace products; furniture; cosmetics; and heating, ventilation, and air conditioning manufacturing announced expansion plans. Firms in plastic products and fabricated metal products also announced plans to open new plants in the District and expand employment.

Ninth District - Minneapolis
Manufacturing output was flat since the last report. A January survey of purchasing managers by Creighton University (Omaha, Neb.) showed that manufacturing activity was relatively level in Minnesota and the Dakotas. An electronic equipment maker in North Dakota reduced production at two plants. A Montana cement maker restarted production after a three-month shutdown. A plastic pipe producer plans to start a plant in South Dakota.

Tenth District - Kansas City
The Tenth District's manufacturing and transportation sectors expanded further, although high-tech firms reported weaker business conditions. District manufacturers reported increased production, shipment volumes, and new orders in the latest survey period. District manufacturing activity has increased steadily since last September and production has returned to near year ago levels. Manufacturers remained optimistic that new orders would be higher in six months; however backlogs were minimal and well below year ago levels. Few manufacturing firms increased hiring, though expectations for future hiring improved markedly in the latest survey period.

Eleventh District - Dallas
Construction-related manufacturers report that demand continues to bounce along the bottom. There is excess capacity in the industry and margins remain depressed. The outlook is still bleak, especially for manufacturers tied to commercial construction. Fabricated metals producers noted a slight uptick in orders, however, demand remains below year-ago levels.

Reports from transportation manufacturers were mixed. Producers of trailers reported steady demand over the past month, but said that orders were up both from three months and year-ago levels. Emergency vehicle manufacturers noted a cut back in production, and added that the outlook had weakened. An automobile manufacturer reported that sales in Texas are holding up better than in other parts of the country and the outlook is"bright."

Twelfth District - San Francisco
District manufacturing activity remained mixed but picked up further on balance during the reporting period of early January through late February. Demand strengthened further for manufacturers of semiconductors, with high levels of capacity utilization and balanced inventories noted. New orders continued to be very limited for makers of commercial aircraft and parts, but the existing order backlog helped keep production activity at or near the prior pace. Demand and capacity utilization for metal fabricators remained at exceptionally low levels. Manufacturers of wood products also continued to face very weak demand, although a slight pickup was noted. Activity at petroleum refineries remained well below the five-year average levels, prompting refinery closures or sales in some cases.

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