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Dallas Fed’s Texas Manufacturing Outlook Survey Shows Mixed Results

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The Dallas Federal Reserve Bank’s monthly manufacturing survey provided mixed results on the sector. On the one hand, the general business conditions measure indicated a worsening economic environment. The composite index was -10.5 in May. While this is an improvement from the -15.6 level observed in April, it also reflects a high degree of pessimism on the part of those taking the survey about the larger macroeconomy and their own company’s current outlook. Twenty-one percent of respondents say that their company’s outlook has weakened, with almost 65 percent saying that there was no change.

At the same time, though, many of the other measures of activity in the survey reflected some progress over the past month, providing an interesting contrast. The index for new orders, for instance, rose from -4.9 to +6.2, indicating a shift from a slight contraction to slight growth. Similarly, the indices for production, capacity utilization, and shipments all reflected some progress. Even there, however, almost half of the respondents observed sales levels that were flat, and the measures of employment activity were both negative. The pace of capital investment growth also slowed.

Nonetheless, the forward-looking measures suggest some cautious optimism in the second half of the year, even if some of the indices had some easing in May. Regarding sales, 38.0 percent of respondents expect new orders to be higher six months from now, with 50.9 percent anticipating no change. Most of the other components reflected positive growth, as well. However, the future-oriented composite measure of general business activity was still negative, up from -6.7 to -2.6. Therefore, there is a degree of tentativeness to these numbers, with optimism tempered by some doubts about where the economy might be headed.

Chad Moutray is chief economist, National Association of Manufacturers.

Texas Manufacturers Report Declining Sales, Activity in April

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Texas manufacturers reported a worsening of conditions in April, reversing some improvements seen in March, according to the Federal Reserve Board of Dallas. The composite index of general business activity fell from 7.4 in March to -15.6 in April. This is the lowest level for the index since July 2012, with 21.4 percent of respondents saying that conditions had worsened from the month before. Almost 73 percent had said that they were the same.

This high degree of pessimism stemmed largely from a reduction in sales and measures of production and shipments which were slightly lower. The new orders index dropped from 8.7 to -4.9. Behind this shift, the percentage of those taking the survey reporting declining new orders rose from 17.7 percent in March to 27.2 percent in April. This was enough to push the sales index into contraction territory. In addition to new orders, production, shipments, and hours worked were all negative, and the pace of growth for capacity utilization and capital expenditures eased.

Interestingly, the index for employment improved for the month, despite lower figures elsewhere. The employment index increased from 2.6 to 6.3, with almost 20 percent of respondents saying that they had picked up their hiring in April. Of course, overall hiring growth still remains modest at best, and two-thirds of manufacturers taking the survey indicated that their hiring had not changed in the month.

The sample comments tend to support this more-negative view of the macroeconomic environment. One chemical manufacturer said that its customers had anticipated a stronger 2013, but “… early results have been somewhat disappointing as there has not been the demand growth so far.” Several comments noted “uncertainty” in the marketplace, both about the larger economy and the business environment. A machinery manufacturer added, “… overall uncertainty about taxes, health care reform, regulation and global economic health are all inhibiting a `more normal’ recovery growth trajectory.”

Even with these sentiments, manufacturers in the Dallas region continue to anticipate higher levels of new orders, production, employment, and investment six months from now. This suggests some cautious optimism moving forward, and perhaps helps to explain the higher current employment number in the survey. With that said, many of these indicators slowed from the month before, mirroring the data discussed above. Manufacturers’ views about their own company’s performance have weakened, and their perceptions about the future macroeconomy have worsened over the course of the past month. That is definitely not the right trend to continue, even with cautious optimism in the forward-looking data readings.

Chad Moutray is chief economist, National Association of Manufacturers.


Texas Manufacturing Activity Eased in February

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The Federal Reserve Bank of Dallas said that manufacturing sentiment eased, with the composite index of general business activity down from 5.5 in January to 2.2 in February. Overall, Texas manufacturers continue to report higher levels of activity on net, with the composite index expanding for the third straight month. Yet, in most of the index’s sub-components, the pace of growth was slower than what we saw in January.

This can clearly be seen in the index for new orders, which was down from 12.2 to 2.8. The shift was mainly due to more respondents saying that their sales were unchanged than in the previous month. Similar drops were reported for production, capacity utilization, shipments, employment, and capital expenditures. Finished goods inventories began growing again, having fallen for five months beforehand, and there was some easing in raw material cost increases for the month.

The reduced manufacturing optimism in the current environment produced some mixed changes in the forward-looking measures. On the one hand, the expected business activity index for six months from now edged up from 9.2 to 10.8. It is notable, though, that over 55 percent of respondents did not expect the larger economic environment to change.

Perhaps consistent with that, the various sub-components of the index grew at a slower pace in February across-the-board, but each of them still indicates stronger growth moving forward. The production index, for instance, was down from 35.7 to 28.7, but almost 42 percent of those responding to the survey said that they expect production to increase over the next six months. Manufacturers in the Dallas Fed District remain cautiously optimistic about activity this year, including for sales, shipments, hiring, and investment.

Chad Moutray is chief economist, National Association of Manufacturers.


Chicago and Dallas Fed Surveys Provide Mixed News

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The Texas Manufacturing Outlook Survey provided mixed comfort with its latest results. On the one hand, the Dallas Federal Reserve Bank reports that its index of general business conditions improved from -0.9 in September to 1.8 in October, a figure that suggests a slight expansion on net. Indeed, indices for production, capacity utilization, shipments, employment, and capital expenditures all indicate modest growth for the month (even as some of them eased somewhat).

More worrisome potentially, the rate of growth for new orders moved in the wrong direction, down from 5.3 to -4.5. Nearly 27 percent of respondents reported sales declines, with another 56.5 percent indicating no change. Along those lines, hours worked also declined.

Despite slowing new orders, manufacturers in the Texas region were more positive about the next 6 months. Almost one-third expect their company’s outlook to improve, with the forward-looking index up from 9.2 to 20.9. Measures of activity were higher across-the-board, with business leaders anticipating stronger increases. Pricing pressures also remain elevated.

The cautious optimism expressed in these numbers notwithstanding, the sample comments do reflect some anxieties about the election, the fiscal cliff, and other headwinds. A plastics manufacturer, for instance, said that they “strongly feel the uncertainty of the election outcome has small businesses and their customers holding their breath.” This was echoed in some of the other comments, as well. One respondent in the fabricated metals sector went so far as to say that his customers – many of whom are Subchapter S corporations who could potentially see their taxes go up on January 1st – are uncertain about their prospects and hampering sales.

Meanwhile, these larger anxieties and a slower global economic environment can be noted in a similar survey from the Chicago Federal Reserve Bank released earlier today. The Chicago Fed’s Midwest Manufacturing Index (MMI) decreased from 95.5 in July to 93.8 in August to 93.4 in September. The auto sector led this decline, with production down 5.3 percent and 2.2 percent, respectively, in the past two months. Still, even with the current slowdown, year-over-year motor vehicle output has risen over 16 percent.

The Midwest has been one of the stronger regions in the country for manufacturing activity, with the MMI up 8.5 percent since September 2011. Strength in the auto, steel, and machinery sectors has been the primary reason. In September, however, steel and machinery production activity were off 0.1 percent and 0.3 percent, respectively. The resource sectors (e.g., “food, wood, paper, chemical, and nonmetallic mineral”) were one area with positive gains for the month, up 0.9 percent.

Overall, these two surveys suggest that there remain significant weaknesses in the manufacturing sector right now. This was highlighted in both falling new orders and the comments of the Dallas Fed survey and in the lower levels of activity in the Chicago MMI. Yet, it is also clear that manufacturers are cautiously optimistic about the future, as well, with hopes that the fiscal cliff and other concerns can adequately be addressed after the election.

Chad Moutray is the chief economist of the National Association of Manufacturers.

Texas Manufacturing Activity Picks Up, But Perceptions About Economy Remain Soft

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The Federal Reserve Bank of Dallas continues to provide a mostly mixed picture on manufacturing for Texas. On the one hand, several measures of activity picked up steam in September. For instance, the index for new orders rose from 0.2 in August to 5.3 in September.

Roughly 26 percent of respondents said that their new sales were rising, with about 53 percent suggesting no change. Slightly higher index figures were also observed for production, capacity utilization, shipments, hours worked and capital expenditures. These data suggest some improvement for manufacturers in the region.

Yet, there were also some concerns. Manufacturing leaders said that their own company’s business outlook was growing at a slower rate, with the index down from 4.1 to 2.4. Sixty-two percent of them said that their outlook had not changed. Meanwhile, their perceptions about the overall economy remain negative, up from -1.6 to -0.9. Nearly 21 percent of those taking the survey say that the general business activity has worsened, with 59.1 of them saying that it was unchanged.

Job hiring continues to be positive, but has eased in the past month. The employment index declined from 14.2 to 5.9, with almost three-fourths of respondents saying that their worker levels were unchanged. Another challenge is increased pricing pressures. The index for raw material prices jumped from 10.9 to 22.5, with 27.8 percent of manufacturers indicating that their costs have risen in the past month. Almost 67 percent said no change in raw material prices. Meanwhile, the prices received for finished goods contracted, suggesting some deflation. Read More