The Dallas Federal Reserve Bank has reported contracting levels of manufacturing activity every month so far in 2015. The composite index of general business conditions improved from -15.8 in August to -9.5 in September; yet, it reflects continuing negative sentiment overall in Texas, largely due to reduced crude oil prices and a strong dollar. Yet, there were also some signs of ever-so-modest progress, with indices for production (up from -0.8 to 0.9), capacity utilization (up from -0.2 to 4.9) and shipments (up from -3.0 to 0.9) stabilizing somewhat. Just over one-quarter of respondents said that output had increased for them during the past month, with 24.2 percent noting declines. Still, half of those completing the survey noted no change in production levels in September, highlighting the precariousness of such progress.
Indeed, new orders (up from -12.5 to -4.6) remained in negative territory, albeit with a slower rate of decline than the month before. Demand has contracted in each month in 2015 except for one (July’s 0.7 reading). The labor market and investment data were also less encouraging, including hiring (down from -1.4 to -6.1), hours worked (down from 0.6 to -11.1) and capital expenditures (down from 4.0 to -8.0). Almost 18 percent of respondents cited fewer employees in September, relative to 11.5 percent adding to their workforces and 70.9 percent with no changes. The numbers on capital spending were similar.
Nonetheless, the outlook for the next six months continued to be marginally positive. The forward-looking composite index rose from 3.4 to 4.8. However, that figure reflects a significant easing in confidence from just two months ago, when this measure was 18.8. On the other hand, even with softer growth expected, many of the measures continue to suggest decent expansions ahead, including new orders (down from 25.8 to 24.1), production (down from 28.0 to 24.7), shipments (down from 28.4 to 21.2) and hiring (down from 11.4 to 6.1). Nearly 38 percent of respondents anticipate increased demand and output over the next six months, with roughly one-fifth planning for more workers and one-quarter planning for increased capital investments. While not as strong as we might prefer, these numbers indicate cautious optimism even in the midst of the current challenges.
Chad Moutray is the chief economist, National Association of Manufacturers.
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