This week we will receive updates on manufacturing activity from a number of regions, providing us with clues as to larger macroeconomic trends nationally. The first of these is from the Dallas Federal Reserve Bank, which found that manufacturing production was up in July.
This is welcome news, particularly since the June survey mirrored others from the Federal Reserve Banks with weakened numbers. While the index for production stayed positive in June at 5.8 (unlike many of the other Fed surveys), the index for general business activity fell to -17.5 last month, reflecting real weakness in the overall regional economy for manufacturers. This month, the index for production rose to 10.8 and the index for general business conditions increased to -2 (an improvement from June, but still showing some contraction).
Other measures reflected a similar uptick from June, with the indices for new orders, unfilled orders, shipments, employment, and hours worked increasing. Materials inventories grew, but at a slower rate than the month before; finished goods inventories remained unchanged. Meanwhile, capital expenditures shrunk in July, with the index falling from 2.4 to -2.3.
Pricing pressures remained elevated, with over 40 percent of the respondents stating that the prices paid for raw materials increased from the previous month. Only 10 percent, however, reported price increases for finished goods, suggesting an inability to pass those higher costs on to the consumer and/or wholesaler.
In general, manufacturers in Texas remain optimistic moving forward. The overall company outlook was virtually unchanged between June and July, with the index moving from 15.6 to 15.9. Six-month expectations for production, new orders, and shipments edged higher, but measures for employment and capital expenditures reflect diminished expectations of growth. This suggests that job creation, while positive in this survey, might not be as strong as once hoped.
Chad Moutray is chief economist, National Association of Manufacturers.
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