- The Washington Times - Monday, February 10, 2003

KANSAS CITY, Mo., Feb. 10 (UPI) — The Federal Reserve Bank of Kansas City said Monday manufacturing activity in the 10th Fed district improved in January as production rose above year-ago levels.

The Fed said firms reporting increases in production rose to six in January after dropping to minus 10 in December.

The regional Fed bank said though several indicators hinted at some apprehension about the coming months, manufacturer's optimism about activity six months in the future remains very high.

In addition, the Fed said expectations about production levels later in the year increased, though plans for future capital spending remained rather cautious.

Production also rose after falling sharply in December, but the report is not seasonally adjusted, so the Fed warned caution must be taken in basing analyses on month-to-month comparisons.

The Fed said production rose to 14 from a minus 20 a month earlier.

The regional Fed said it appears most of the improvement during the month occurred at durable goods-producing plants. Although sample sizes make it more difficult to draw firm conclusions about individual states, the data suggests that manufacturing was above year-ago levels in Nebraska and Oklahoma but still weak elsewhere.

Like production, most other indexes of factory activity improved during the first month of the new year.

The volume of shipments and volume of new orders at district firms rose back above year-ago levels and the index for backlog of orders reached zero after being negative for nearly three years.

Shipments rose to 11 from a minus 12 in December while backlog orders improved to minus 8 from minus 26 in December.

The Kansas City Fed said the employment index rose but remained highly negative. The employment index improved to minus 11 from minus 18 a month earlier.

Meanwhile, the index for average employee workweek jumped to 4 from minus 19, suggesting the pick-up in production during the month at many firms was partly a result of current workers logging longer hours.

An exception to the overall improvement was the index for capital spending, which fell for the second straight month, perhaps reflecting some apprehension among firms about the outlook for the very short-term.

The Fed said its inventory indexes were nearly identical to their December readings. The index for inventories of raw materials was still negative, again possibly suggesting uncertainty about the near-term outlook. Meanwhile, inventories of finished goods remained basically at year-ago levels for the second straight month.

As for prices, upward pressures on raw materials prices appeared to ease somewhat, while finished goods prices remained well below year-ago levels.

The index that measures raw materials prices fell to 23, the lowest reading since last spring. At the same time, however, the index for prices received for finished goods remained as negative as in previous months, suggesting that firms continue to have difficulties passing cost increases through to customers.

The Fed said: "Although several indicators of factory activity hint at some apprehension among firms about coming months, optimism about activity six months down the road remains very high."

The Fed said future production index rose to 38 from the fourth quarter and up considerably from last summer.

"Expectations for future shipments and new orders were also around their highest levels in a year," the regional central bank said.

The report showed the future employment index bounced back after easing in December and the index for future employee workweek reached its highest level in three years.

The Fed said, "Firms were also clearly more optimistic about the outlook for export orders than at any time in the last six months. The future capital spending index failed to show much improvement in January, but remained slightly positive."

Firms also continued to expect sizable increases in raw materials prices over the next six months while finished goods prices are expected to rise only slightly, the report showed.

The survey included 86 responses from manufacturing plants in Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico and western Missouri.

The Fed said it calculates the report by subtracting the percentage of total respondents reporting decreases from the percentage reporting increases. Index values greater than zero generally suggest expansion, while values less than zero indicate contraction.

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