Fed Beige Book: Economic activity improves
Overall economic activity increased somewhat since the last report across all Federal Reserve Districts except St. Louis, which reported "softened" economic conditions.
Manufacturing activity increased since the last report across most of the country, with all Districts other than St. Louis reporting increases in orders, shipments, or production.
Read manufacturing highlights from each district below or click here to read the full report.
First District - Boston
Most manufacturing and related services contacts headquartered in the First District continue to report improving demand for their products in the first quarter of 2010. Overall, the manufacturers serving IT, electronics, and business services industries report the greatest increases in demand. By contrast, firms selling machinery and equipment to industrial customers and those supplying real estate-related sectors, especially commercial real estate development, say that business has stabilized or is improving somewhat, but they expect underlying demand to remain relatively sluggish for the rest of the year. In addition, some firms caution that growth in the first half of 2010 appears strong simply because demand in the first half of 2009 was so weak.
The employment situation in the manufacturing sector remains relatively unchanged. At most firms, hiring in the U.S. is expected to remain relatively flat or increase only slightly for 2010. Manufacturers continue to try to restore wage cuts and/or unfreeze wages.
Most manufacturing respondents report that their planned capital expenditures for 2010 are level with or slightly greater than their expenditures in 2009. Virtually all the contacted manufacturing firms remain cautiously optimistic that business conditions will continue to improve as the year progresses. The consensus, however, is that it may take a while for underlying demand to pick up substantially, and 2010 may turn out to be a transition year.
Second District - New York
The Second District's economy has strengthened noticeably since the last report, though hiring remains sluggish; price pressures have increased moderately but prices at the consumer level remain stable. Manufacturing-sector contacts report improved activity.
Third District - Philadelphia
Third District manufacturers reported increases in shipments and new orders in March, on balance, although the number of firms recording gains was not as large as it was in February. However, most of the major manufacturing industries in the region posted net increases. In general, manufacturers indicated that demand for their products was picking up slowly.
Third District manufacturers who were queried in March expect business conditions to improve during the next six months, on balance, and the level of optimism has been practically unchanged from last month. Among the firms surveyed in March, about half expect increases in new orders and shipments; about one-tenth expect decreases. Capital spending plans among area manufacturers remain positive, on balance, but have weakened since the last Beige Book. About one-fifth of the firms polled in March plan to increase expenditures for new plant and equipment, although two-thirds plan to maintain level spending.
Fourth District - Cleveland
Reports from District factories showed that production was largely stable or rose slightly during the past six weeks, with a few contacts cited an increase in their backlogs. Most manufacturers said production levels have increased on a year-over-year basis, though by varying amounts. In general, respondents are cautiously optimistic and expect their sales to increase at a modest rate going into summer, but they are not expecting a return to pre-recession levels through the end of the year.
Reports on inventories were mixed. Capacity utilization continued a slow upward trend. Capital outlays are on target, with monies being allocated primarily for maintenance projects, new equipment, or IT upgrades. Manufacturers said that outlays will remain below pre-recession levels until a robust recovery is underway.
Fifth District - Richmond
District manufacturing advanced somewhat faster since the last report. A majority of the contacts reported that shipments posted gains and new orders continued to increase, while employment stabilized.
Port activity over the last few months was up slightly. Both imports and exports posted moderate gains, although exports tended to outperform import gains. While the dollar was seen as a contributing factor, most contacts attributed gains in exports primarily to improvements in overseas markets. One contact stated that exports would have been even stronger if the right mix of containers had been available. However, shipping costs increased in recent months, which discouraged some companies from exporting.
Sixth District - Atlanta
The majority of District manufacturers reported that new orders increased and production levels improved. Contacts noted increased hours worked and many anticipated employment gains in the short-term. A few auto assembly plants recalled some workers. Freight demand continued to improve from low levels. Regional rail shipments through mid-March were up notably for automotive, chemical, and other raw industrial materials.
Seventh District - Chicago
Manufacturing picked up in March, and contacts indicated business confidence was on the rise. Orders increased, particularly in recent weeks, stemming in part from the restocking of inventories. Contacts also reported that production schedules were beginning to firm into the second half of 2010 and viewed this as a sign that some pent-up demand was being released now that the economic outlook was improving and less uncertain. The auto industry remained a strong source of growth, as did the pharmaceutical, mining, and energy sectors. Activity in the steel industry continued to improve, and a contact noted that they were having a hard time meeting demand with the capacity currently on-line.
Eighth District - St. Louis
Manufacturing activity declined since the previous report. Contacts reported more plant closures and job layoffs than plant openings and new hires. Several manufacturers reported plans to consolidate operations and lay off employees, including firms in the appliance; heating, ventilation, and air conditioning; steel; and machinery manufacturing industries. Furthermore, firms in the construction materials, auto parts, and food and beverage manufacturing industries announced plans to close a plant in the District. In contrast, a major firm in defense goods manufacturing announced plans to add new jobs and expand production. Several small firms in food and beverage manufacturing and metal products manufacturing announced plans to expand operations and hire new workers.
Ninth District - Minneapolis
Manufacturing output was up since the last report. A March survey of purchasing managers by Creighton University (Omaha, Neb.) showed that manufacturing activity increased significantly in Minnesota and South Dakota and was flat in North Dakota. A small Minnesota transmitter maker plans to expand into a larger facility. In North Dakota, a wind energy component manufacturer plans to build a plant.
Tenth District - Kansas City
Manufacturing and transportation activity expanded solidly since the last survey period. Manufacturing production improved to near year-ago levels as slightly slower growth at non-durable goods plants was offset by stronger durable goods production. A moderate rise in shipments and exports reduced inventories and the backlog of orders increased slightly. Producer expectations for future factory activity improved with sustained growth in new order volumes. Employment levels held steady during the survey period, but more manufacturers planned to increase payrolls over the next six months. Capital spending plans, however, remained largely on hold.
Eleventh District - Dallas
Reports from construction-related manufacturers were mixed, but overall they suggest that activity has bottomed out. Some firms noted that favorable weather in March led to an uptick in orders, while others reported continued weakness. Contacts say that while the "worst may be over", they expect a slow recovery in business. Fabricated metals producers cited a sharp rise in orders, and reported a positive sales outlook for the next three months.
Producers of trailers reported a large increase in orders over the past month, and added that they were building up inventories to better meet customers' needs. Manufacturers of emergency vehicles said growth in orders decelerated over the past six weeks as customers, particularly municipalities, are experiencing a decline in tax revenues.
Paper manufacturing firms cited flat to rising demand. Respondents say conditions have improved relative to last year, but the picture is far from rosy and expectations are for a slow and gradual recovery. Food producers said demand held steady over the past month, and noted a positive sales outlook for the year.
Respondents in high-tech manufacturing reported that orders continued to accelerate and the book-to-bill ratio was well above one. Contacts say inventories have increased slightly but still remain below desired levels. In an industry where prices typically fall, strong demand has helped stabilize prices. Most respondents are cautiously optimistic that demand will remain solid over the next three to six months.
Petrochemical producers report that ethylene plant outages have led to large increases in prices for ethylene and other related products such as polyethylene and polyvinyl chloride, which has dampened export demand for these products. Refinery margins remain very weak, and capacity utilization rates are below 80 percent.
Twelfth District - San Francisco
District manufacturing activity continued to improve during the reporting period of late February into early April. Demand strengthened further for manufacturers of semiconductors and other technology products, with reports pointing to rising sales and high levels of capacity utilization. New orders remained limited for makers of commercial aircraft and parts, but existing order backlogs generally held production rates at or near capacity. Demand improved modestly for struggling companies in the metal fabrication and wood products sectors, although capacity utilization remained at extremely low levels. Activity at petroleum refineries remained well below the five-year average levels, as producers worked down excess inventories arising from weak demand for gasoline.
INDUSTRIAL SUPPLY MAGAZINE
The May/June issue of Industrial Supply magazine features an in-depth cover story about GHX Industrial. Plus, we're featuring articles by contributing writers Dr. Bharani Nagarathnam and Frank Hurtte, as well as interviews with numerous product and distribution industry experts.
