The Federal Reserve Bank of Dallas said that manufacturing sentiment eased, with the composite index of general business activity down from 5.5 in January to 2.2 in February. Overall, Texas manufacturers continue to report higher levels of activity on net, with the composite index expanding for the third straight month. Yet, in most of the index’s sub-components, the pace of growth was slower than what we saw in January.
This can clearly be seen in the index for new orders, which was down from 12.2 to 2.8. The shift was mainly due to more respondents saying that their sales were unchanged than in the previous month. Similar drops were reported for production, capacity utilization, shipments, employment, and capital expenditures. Finished goods inventories began growing again, having fallen for five months beforehand, and there was some easing in raw material cost increases for the month.
The reduced manufacturing optimism in the current environment produced some mixed changes in the forward-looking measures. On the one hand, the expected business activity index for six months from now edged up from 9.2 to 10.8. It is notable, though, that over 55 percent of respondents did not expect the larger economic environment to change.
Perhaps consistent with that, the various sub-components of the index grew at a slower pace in February across-the-board, but each of them still indicates stronger growth moving forward. The production index, for instance, was down from 35.7 to 28.7, but almost 42 percent of those responding to the survey said that they expect production to increase over the next six months. Manufacturers in the Dallas Fed District remain cautiously optimistic about activity this year, including for sales, shipments, hiring, and investment.
Chad Moutray is chief economist, National Association of Manufacturers.