The Federal Reserve Bank of Dallas said that manufacturing activity improved in September, expanding for the fourth straight month. The composite index of general business activity rose from 5.0 in August to 12.8 in September. This was the fastest pace since February 2012 and good sign that output and sentiment have begun to move higher. Indeed, the index for production moved from 7.3 to 11.5, with just over one-quarter of respondents suggesting that their production had increased from the previous month. At the same time, 59.3 percent of those completing the survey reported no change in production for the month, suggesting that manufacturing expansion continues to be less-than-robust.
Along those lines, the new orders index edged slightly lower from 5.4 to 5.0. This indicates very modest growth in sales. While 26.7 percent of respondents had increased sales for the month, nearly 22 percent had lower sales and just over half stated no change. The good news was that new orders have expanded each month since May, but the decelerated rate in September foretells some possible tentativeness for producers, particularly moving into October.
Whereas the larger story reflects the pickup in activity experienced since the summer, many of the current measures outside of production and utilization mirrored the easing in the growth rates seen in the new orders index. For instance, shipments (down from 11.4 to 10.0), employment (down from 11.2 to 10.0), and capital expenditures (down from 10.4 to 5.9) all grew, but at a slower rate for the month. The other important aspect of these points was that the vast majority of respondents made no changes in September, with 76.4 percent keeping their employment levels unchanged and 86.7 percent making no changes to their capital investments. Meanwhile, the average number of hours worked were slightly contractionary, albeit at a slower pace than the month before (up from -9.9 to -0.6).
Looking ahead, manufacturers in the Dallas Fed region continued to be cautiously optimistic about the next six months. With that said, the future-oriented composite index declined from 14.2 to 13.2. Still, nearly 39 percent of those taking the survey anticipate higher sales in the coming months, with just 6 percent forecasting reduced new orders. Many of the other measures were similar, including mostly upbeat data for production, shipments, hiring, and capital spending. In each case, though, clear pluralities were standing pat, with no changes planned.
Chad Moutray is the chief economist, National Association of Manufacturers.
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