The Federal Reserve Bank of Dallas’s latest survey of manufacturers in its District produced somewhat mixed results for October. The protracted budget impasse in Washington dampened enthusiasm and the overall outlook for many respondents. The composite index of general business activity declined from 12.8 in September to 3.6 in October. The easing in optimism stemmed from the jump in those taking the survey who said that conditions had worsened, up from 10.1 percent in September to 19.3 percent in October. Illustrating the extent to which the shutdown impacted perceptions, a primary metal manufacturer put it succinctly, “The federal government needs to run better.”
Yet, even as enthusiasm dipped, manufacturers in the Dallas Fed region were noting upticks in overall activity levels. The production index, for instance, rose from 11.5 to 13.3, with 30.0 percent of respondents saying that output had increased in the past month. Just over half of them reported no change in production in September, however, suggesting that some weaknesses remain. Still, an acceleration in the pace of growth was also noted for new orders (up from 5.0 to 6.2), shipments (up from 10.3 to 13.2), capacity utilization (up from 10.7 to 11.9), and capital spending (up from 5.9 to 11.8).
Even with these more-positive data points, it is worthwhile to observe that a significant majority of those taking the survey were in a holding pattern. In fact, 60.4 percent of respondents said that their company’s outlook had not changed in October – a figure that extends to many of the other subcomponents, as well. For instance, three-quarters of respondents did not change their employment levels despite modest hiring growth in the overall index.
Looking ahead, manufacturers in the Dallas Fed District continued to be mostly upbeat about future levels of activity, albeit with some diminished enthusiasm. Just over one-third have an improved company outlook for the next six months, with 47.6 percent noting no change. The data were largely positive across-the-board, with increases in new orders, production, shipments, employment, and capital spending anticipated in the coming months. Yet, there is also some tentativeness for those responding to the survey. A majority forecast no growth in activity for their firms, and the pace of hiring growth slowed somewhat this month.
Chad Moutray is the chief economist, National Association of Manufacturers.
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