Texas manufacturers reported a worsening of conditions in April, reversing some improvements seen in March, according to the Federal Reserve Board of Dallas. The composite index of general business activity fell from 7.4 in March to -15.6 in April. This is the lowest level for the index since July 2012, with 21.4 percent of respondents saying that conditions had worsened from the month before. Almost 73 percent had said that they were the same.
This high degree of pessimism stemmed largely from a reduction in sales and measures of production and shipments which were slightly lower. The new orders index dropped from 8.7 to -4.9. Behind this shift, the percentage of those taking the survey reporting declining new orders rose from 17.7 percent in March to 27.2 percent in April. This was enough to push the sales index into contraction territory. In addition to new orders, production, shipments, and hours worked were all negative, and the pace of growth for capacity utilization and capital expenditures eased.
Interestingly, the index for employment improved for the month, despite lower figures elsewhere. The employment index increased from 2.6 to 6.3, with almost 20 percent of respondents saying that they had picked up their hiring in April. Of course, overall hiring growth still remains modest at best, and two-thirds of manufacturers taking the survey indicated that their hiring had not changed in the month.
The sample comments tend to support this more-negative view of the macroeconomic environment. One chemical manufacturer said that its customers had anticipated a stronger 2013, but “… early results have been somewhat disappointing as there has not been the demand growth so far.” Several comments noted “uncertainty” in the marketplace, both about the larger economy and the business environment. A machinery manufacturer added, “… overall uncertainty about taxes, health care reform, regulation and global economic health are all inhibiting a `more normal’ recovery growth trajectory.”
Even with these sentiments, manufacturers in the Dallas region continue to anticipate higher levels of new orders, production, employment, and investment six months from now. This suggests some cautious optimism moving forward, and perhaps helps to explain the higher current employment number in the survey. With that said, many of these indicators slowed from the month before, mirroring the data discussed above. Manufacturers’ views about their own company’s performance have weakened, and their perceptions about the future macroeconomy have worsened over the course of the past month. That is definitely not the right trend to continue, even with cautious optimism in the forward-looking data readings.
Chad Moutray is chief economist, National Association of Manufacturers.