The Texas Manufacturing Outlook Survey provided mixed comfort with its latest results. On the one hand, the Dallas Federal Reserve Bank reports that its index of general business conditions improved from -0.9 in September to 1.8 in October, a figure that suggests a slight expansion on net. Indeed, indices for production, capacity utilization, shipments, employment, and capital expenditures all indicate modest growth for the month (even as some of them eased somewhat).
More worrisome potentially, the rate of growth for new orders moved in the wrong direction, down from 5.3 to -4.5. Nearly 27 percent of respondents reported sales declines, with another 56.5 percent indicating no change. Along those lines, hours worked also declined.
Despite slowing new orders, manufacturers in the Texas region were more positive about the next 6 months. Almost one-third expect their company’s outlook to improve, with the forward-looking index up from 9.2 to 20.9. Measures of activity were higher across-the-board, with business leaders anticipating stronger increases. Pricing pressures also remain elevated.
The cautious optimism expressed in these numbers notwithstanding, the sample comments do reflect some anxieties about the election, the fiscal cliff, and other headwinds. A plastics manufacturer, for instance, said that they “strongly feel the uncertainty of the election outcome has small businesses and their customers holding their breath.” This was echoed in some of the other comments, as well. One respondent in the fabricated metals sector went so far as to say that his customers – many of whom are Subchapter S corporations who could potentially see their taxes go up on January 1st – are uncertain about their prospects and hampering sales.
Meanwhile, these larger anxieties and a slower global economic environment can be noted in a similar survey from the Chicago Federal Reserve Bank released earlier today. The Chicago Fed’s Midwest Manufacturing Index (MMI) decreased from 95.5 in July to 93.8 in August to 93.4 in September. The auto sector led this decline, with production down 5.3 percent and 2.2 percent, respectively, in the past two months. Still, even with the current slowdown, year-over-year motor vehicle output has risen over 16 percent.
The Midwest has been one of the stronger regions in the country for manufacturing activity, with the MMI up 8.5 percent since September 2011. Strength in the auto, steel, and machinery sectors has been the primary reason. In September, however, steel and machinery production activity were off 0.1 percent and 0.3 percent, respectively. The resource sectors (e.g., “food, wood, paper, chemical, and nonmetallic mineral”) were one area with positive gains for the month, up 0.9 percent.
Overall, these two surveys suggest that there remain significant weaknesses in the manufacturing sector right now. This was highlighted in both falling new orders and the comments of the Dallas Fed survey and in the lower levels of activity in the Chicago MMI. Yet, it is also clear that manufacturers are cautiously optimistic about the future, as well, with hopes that the fiscal cliff and other concerns can adequately be addressed after the election.
Chad Moutray is the chief economist of the National Association of Manufacturers.
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