“There Is Nothing Encouraging On The Horizon” – Dallas Fed Manufacturing Survey Contracts For 13th Straight Month

After tumbling last month, The Dallas Fed’s Manufacturing outlook survey was expected top bounce in May… but it didn’t.

The Texas Manufacturing Outlook survey dropped from -23.4 to -29.1 (vs -18.0 exp).

Source: Bloomberg

This is the 13th straight month of ‘contraction’ (below zero) for the index.

The new orders index has now been in negative territory for a year and pushed down further from -9.6 to -16.1.

The growth rate of orders index also fell, declining 10 points to -20.7, its lowest value since mid-2020.

The capacity utilization index moved down from 3.9 to -4.9, while the shipments index was unchanged at -3.0.

Perceptions of broader business conditions continued to worsen in May.

The general business activity index dropped six points to -29.1, its lowest reading in three years.

The company outlook index pushed down seven points to -22.3, also a three-year low. The outlook uncertainty index retreated to 13.4, a reading below average.

The respondents’ remarks say it all:

Chemical manufacturing

  • Volumes have not rebounded at a level we would expect this time of year. Orders seem to be more erratic, which is in line with automotive and building construction markets trending downward as interest rates have deeply impacted both of these key, basic-materials consumer sectors.

Computer and electronic product manufacturing

  • It is easier to find qualified employees over the last few weeks.

Fabricated metal product manufacturing

  • Our only problem is our inability to hire enough hourly employees at the plant.
  • We have had orders canceled when owners have decided not to proceed with projects.
  • We have a continued focus on clearing the backlog of orders as supply constraints clear.

Food manufacturing

  • Order volume has stalled recently.
  • We have different dynamics and drivers in our business. We clearly are moving into a period of stagflation.

Machinery manufacturing

  • We are seeing a massive slowdown in business activity.

Paper manufacturing

  • We are seeing all indications of a continued slide in demand (three quarters now). Prices are coming down some, but labor costs are still going up. This offsets any reduction in material costs, so margins are down as a result.

Primary metal manufacturing

  • Business is slowing down. That is certain.
  • The building and construction industry remains significantly off, primarily residential.  Another very negative factor is the influx of foreign material used in our industry.

Printing and related support activities

  • We are fortunate to have been busy with seasonal work the last few months; otherwise, we would have been hurting just living off commercial finishing work. We have a large seasonal job starting in two weeks that will keep a lot of people busy through Labor Day. General activity is definitely slower than it has been.

Textile product mills

  • We feel better now than we did a month ago about sales and the general environment. We have seen an increase in sales, particularly in our direct-to-consumer segment, although retail stores are down (retail stores are not a key strategic growth area for us; we’ve seen the writing on the wall for a while with this group). I also think uncertainty has reduced. I feel that we have a better grasp on the “new normal” cost structure and don’t anticipate any new major shocks to the system.

Transportation equipment manufacturing

  • There is nothing encouraging on the horizon. The war on fossil fuels and higher interest rates continue to make things worse. Doesn’t the Federal Reserve understand a higher interest rate is crushing banks?

Is this what Powell wants to hear?


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