The Dallas Federal Reserve Bank’s monthly manufacturing survey provided mixed results on the sector. On the one hand, the general business conditions measure indicated a worsening economic environment. The composite index was -10.5 in May. While this is an improvement from the -15.6 level observed in April, it also reflects a high degree of pessimism on the part of those taking the survey about the larger macroeconomy and their own company’s current outlook. Twenty-one percent of respondents say that their company’s outlook has weakened, with almost 65 percent saying that there was no change.
At the same time, though, many of the other measures of activity in the survey reflected some progress over the past month, providing an interesting contrast. The index for new orders, for instance, rose from -4.9 to +6.2, indicating a shift from a slight contraction to slight growth. Similarly, the indices for production, capacity utilization, and shipments all reflected some progress. Even there, however, almost half of the respondents observed sales levels that were flat, and the measures of employment activity were both negative. The pace of capital investment growth also slowed.
Nonetheless, the forward-looking measures suggest some cautious optimism in the second half of the year, even if some of the indices had some easing in May. Regarding sales, 38.0 percent of respondents expect new orders to be higher six months from now, with 50.9 percent anticipating no change. Most of the other components reflected positive growth, as well. However, the future-oriented composite measure of general business activity was still negative, up from -6.7 to -2.6. Therefore, there is a degree of tentativeness to these numbers, with optimism tempered by some doubts about where the economy might be headed.
Chad Moutray is chief economist, National Association of Manufacturers.
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