The Federal Reserve Bank of Dallas reported that manufacturing production continued to expand modestly in May, but new orders slightly contracted. The result was a worsening of manufacturers’ perceptions about the current business environment, with the composite index falling from -3.4 in April to -5.1 in May.
The overall report, though, was not as bad as the headline number suggests. Respondents noted an improvement in their own company’s outlook, and production remained steady, down from 5.6 to 5.5 and suggesting modest growth in activity. Employment and capital expenditures also continued to expand, albeit with a somewhat slower pace for job creation than in April. With that said, there were a number of weaknesses to cite. In addition to contracting new orders, shipments and hours worked also fell.
Manufacturers in the Texas region, though, continue to be upbeat about the second half of this year. While there was increased pessimism about the general business outlook, various measures of their own company’s manufacturing activity remain strong (but with a slower pace of growth than reported last month). These include production, capacity utilization, new orders, shipments, employment and capital expenditures. Only 9 percent of respondents, for instance, expect production to fall six month from now, with over 40 percent suggesting it will be higher. Pricing pressures are expected to remain elevated.
Overall, this report mirrors several other regional surveys showing some production weaknesses in April and May, with more favorable assessments looking forward.
In other news, the Conference Board said that consumer confidence declined in May, building on reduced sentiment experienced in April. The consumer confidence index fell from 68.7 in April to 64.9 in May. This is a decline from its recent peak in February of 71.6. The current reading is essentially where it stood in December.
This survey found Americans more worried about pocketbook issues, particularly employment. Much of the decline, for instance, stemmed from a reduced opinion about the state of the current economic environment. The forward-looking component also fell, but not by as much. On the positive side, though, income expectations rose, and buying intentions for automobiles and appliances edged slightly higher. Home buying plans were mostly unchanged.
Interestingly, the University of Michigan’s similar survey reached a different conclusion on Friday, with lower energy costs and improved housing conditions lifting their confidence measure higher in May. This survey tended to move more on employment worries. The bottom line, though, will be whether consumer sentiment – regardless of whether it is slightly higher or slightly lower – impacts Americans’ willingness to spend. To date, the consumer has been willing to still make modest increase in his or her purchases, and that should continue.
Chad Moutray is chief economist, National Association of Manufacturers.
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