Manufacturing Slows Down in Midwest and Texas Regions

By April 30, 2012Economy

The Federal Reserve Bank of Dallas reported that manufacturing production has slowed down, with the production index down from 11.1 in March to 5.6 in April. A similar drop off was observed for capacity utilization and employment. More troubling, perhaps, was the decline in new orders, shipments and hours worked, as each of these measures were found to be contracting. New orders – a measure of future activity – decreased from -0.3 to -1.0 for the month, with a little over one-quarter of the respondents reporting lower activity.

Over the past year, those taking the survey were often more optimistic about their own company’s performance than they were about the larger macroeconomy. Yet, this survey finds that the company outlook has also turned negative. The indices for company outlook fell from 9.5 to -4.5, and the composite index on general business activity declined from 10.8 to -3.4. In each of these variables, nearly three-quarters of respondents observed no change in their outlook, with the difference being the number who said that conditions had worsened.

Despite this rather glum current assessment, the Texas Manufacturing Survey respondents continued to be mostly positive about the next six months, albeit with less vigor than the previous report. The expected company outlook dropped from 26.2 to 14.4, indicating improved conditions ahead. The key indicators of production, new orders, capacity utilization, capital spending and employment remain strong. This mirrors other regional surveys which suggest that the current slowdown might be more of a blip than a long-term trend.

Nonetheless, the slowdown was also observed in the Midwest. The ISM-Chicago released the latest Chicago Business Barometer, which shows weakening manufacturing activity in the Midwest. The Barometer fell from 62.2 in March to 56.2 in April. While this still signifies growth in the region, the pace of activity has slowed considerably. The composite index is now at its lowest level since the end of 2009. Weaker production and new order data are behind the decline. Employment bucked the trend, with a slight uptick in job growth.

Overall, these studies show current weaknesses in the manufacturing sector, which have been seen in nearly all of the regional surveys (with the exception of the one from the Richmond Fed). With that in mind, tomorrow’s release from ISM on national manufacturing activity is expected to be weak.



Chad Moutray

Chad Moutray

Chad Moutray is chief economist for the National Association of Manufacturers (NAM) and the Director of the Center for Manufacturing Research for The Manufacturing Institute, where he serves as the NAM’s economic forecaster and spokesperson on economic issues. He frequently comments on current economic conditions for manufacturers through professional presentations and media interviews. He has appeared on Bloomberg, CNBC, C-SPAN, Fox Business and Fox News, among other news outlets.
Chad Moutray

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