The Dallas Federal Reserve Bank said that manufacturing activity in its Texas district improved in September, even as sentiment has now contracted for 21 straight months. The composite index of general business conditions increased from -6.2 in August to -3.7 in September, bringing this measure closer to neutral territory. Despite the negative figure in the composite measure, most of the underlying data points reflected strengthening levels of growth in September. This included production (up from 4.5 to 16.7), shipments (up from 9.9 to 20.1) and capacity utilization (up from 0.9 to 13.5). On the other hand, new orders (down from 5.3 to -2.9) shrank once again in September, falling for the eighth time in the past 10 months.
With that in mind, it should not be a surprise that manufacturers in the Dallas Fed region remain cautious in their outlook. As one computer and electronic products respondent put it, “We continue to bump along in a low-growth environment. We don’t see that changing at any point in the future. Things are not bad, but are not good.” On the positive side, hiring (up from -5.0 to 2.3) and capital spending (up from -5.7 to 3.1) both rebounded in September, with each expanding slightly after contracting in August. Along those lines, a few of the sample comments noted difficulties in attracting and retaining skilled talent.
Moving forward, manufacturing leaders were mostly positive about the next six months, but with some easing in perceptions from the prior release. Expected indices for new orders (down from 38.6 to 29.1), production (down from 32.8 to 30.5), shipments (down from 30.0 to 26.1), employment (down from 21.7 to 14.5) and capital expenditures (down from 14.7 to 13.5) moved lower but continued to reflect sizable growth ahead. The forward-looking composite index rose from 7.0 to 9.3, expanding for the fourth straight month. At the same time, these figures also indicate a more-mixed environment than seen at first glance. Just over half of those completing the survey anticipated orders to be unchanged over the next six months, with 39.2 percent predicting gains.