The Federal Reserve Bank of Dallas reported that manufacturers in its region were more pessimistic in their assessments of the overall economy in July than in June. Their view of the macroeconomic environment has diminished in the last month, with the composite index of general business conditions dropping from 5.8 in June to -13.2 in July. Nearly 30 percent of respondents said that overall business activity had worsened, with 54 percent suggesting no change.
Even with this more downbeat appraisal of the larger economy, manufacturers continue to expand on net, albeit at a much slower rate. The index for respondents’ own company’s activity declined from 5.5 to 1.6.
There were several subcomponents of this survey that support this view. Measures of current production and employment saw some easing but remain stronger than other components. The production index, for instance, decreased from 15.5 to 12.0, still indicating some strength. In fact, 27 percent of respondents said that their production had increased in the past month, with 58 percent suggesting no change.
Some of the weaker areas included new orders, inventories, and capital expenditures. The new orders index dropped from 7.9 to 1.4, with the growth rate of new orders contracting. Similarly, capital investments also moved into negative territory, down from 8.1 to -0.8. Each of these suggests some murkiness in the coming months. Also of note is the fact that the prices received index has contracted for five months in a row, indicating that more firms have needed to reduce their selling price of late to move their goods.
Regarding future expectations, manufacturers in Texas remain guarded in their optimism. Their assessment of the macroeconomy six months from now has shifted from positive to negative, and this has altered many company’s forecasts.
Still, with some easing, various measures of production, orders, employment, and capital spending remain strongly positive. Over 39 percent think that production will be higher than now, for instance.
Overall, the Dallas Fed survey is consistent with other regions measures of sentiment. Manufacturers have become more anxious about the economy in the past few months, weakening their outlook. The sample comments tend to highlight this, as they tend to focus on the fiscal cliff, the regulatory climate, and reduced confidence. And yet, despite that, many of them indicate modest expansion in their businesses moving forward – an interesting, if not hopeful, split in outlook.
Chad Moutray is chief economist, National Association of Manufacturers.