The Dallas Federal Reserve Bank said that manufacturing activity contracted in Texas for the fifth straight month. The composite index of general business conditions declined from -16.0 in April to -20.8 in May, falling to its lowest level since June 2009. Manufacturers in the district continue to struggle with lower crude oil prices; although, there might also be a sense of stabilization. As one fabricated metal manufacturing respondent said in the sample comments, “With some recovery in the price per barrel of oil, the general feeling is that our business has leveled.”
Still, these data suggest that demand and production remain very weak right now. The underlying data were mostly lower across-the-board, with declines in activity getting larger, at least for now. This included measures for new orders (down from -14.0 to -14.1), production (down from -4.7 to -13.5), shipments (down from -5.6 to -13.2), capacity utilization (down from -10.4 to -11.6), employment (down from 1.8 to -8.2) and hours worked (down from -5.0 to -11.6). Illustrating this point, 31.0 percent of survey respondents cited declining new orders for the month, with just 16.9 percent noting increases. On the other hand, capital expenditures (up from 3.3 to 3.4) continued to expand somewhat modestly, providing some degree of optimism moving forward.
Indeed, the composite index for expected activity six months from now returned to positive territory for the month, up from -5.9 to 4.9. The index for one’s own company outlook also improved, up from 5.3 to 15.1. Therefore, respondents remained optimistic about the coming months. In fact, nearly half of those taking the survey anticipate higher production six months from now, with 28.6 percent and 21.0 percent seeing increased hiring and capital expenditures, respectively.
Chad Moutray is the chief economist, National Association of Manufacturers.
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