Dallas Fed Manufacturing Survey: +9 vs. +25 consensus and +27.3 prior - Dallas Fed Mfg comes in well below expectations as supply chains and prices constrain new orders and shipments
Dallas Fed Manufacturing Survey: +9 vs. +25 consensus and +27.3 prior.
August Dallas Fed manufacturing survey (for Texas region) comes in similar to other Fed surveys other than Richmond, well under expectations and the July read, but still firmly in positive territory. In the case of Texas, new orders and shipments drove most of the decline with those indicators falling by double digits (although still coming in well above survey historical averages). Based on the comments and the fact that backlogs edged up, it sounds like despite orders falling there is more than enough business. It is servicing that business that is the issue. In that regard prices and wages remained very high. But the capacity constraints and high prices did result in outlooks falling by double digits both for current conditions and six months out. They did remain as did the other indicators firmly in positive territory. Full table at the end.
Here was the commentary from the report:
Texas factory activity continued to increase in August, albeit at a slower pace, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, slipped 10 points to 20.8. The reading was well above average and indicative of robust output growth. Other measures of manufacturing activity also pointed to slower but above-average growth this month.
The new orders index came in at 15.6, down from 26.8 but more than double the series average of 6.5. The growth rate of orders index fell 15 points to 10.7. The capacity utilization and shipments indexes came in at 21.7 and 15.2, respectively, down from July levels but still elevated.
Perceptions of broader business conditions continued to improve in August, though the indexes came in markedly lower than in recent months. The general business activity index fell 18 points to 9.0, its lowest reading since January. The company outlook index fell 11 points to 11.5. The outlook uncertainty index pushed up from 14.6 to 21.1, posting its highest reading since May 2020.
Labor market measures indicate continued growth. The employment index remained highly elevated at 21.9, down a couple points from the July reading. Twenty-nine percent of firms noted net hiring, while 7 percent noted net layoffs. The hours worked index held steady at 24.3.
Prices and wages continued to increase strongly in August. The price indexes were largely unchanged at high levels, with the raw materials prices index at 74.9 and the finished goods prices index at 38.1. The wages and benefits index ticked down to 43.4 from 46.0 in July.
Expectations regarding future manufacturing activity remained optimistic in August, though the future general business activity index was less positive, falling from 37.1 to 15.1. The survey’s more tangible measures of future factory activity held up better but also slipped slightly. The future production index ticked down four points to 44.3, and most other measures of future manufacturing activity also declined slightly but remained solidly in positive territory.
Here were the comments:
Chemical Manufacturing
- We are having increased difficulty in procurement of raw materials and logistical costs.
Nonmetallic Mineral Product Manufacturing
- We have had unprecedented increases in steel raw materials and are unable to secure long-term commitments for volume or price.
Primary Metal Manufacturing
- Business is still good. Our problems are not orders—we have plenty—but we don’t have enough people or raw materials to fill all orders.
- We have the largest backlog in the history of our company. Our raw material prices are rising, and on Jan. 1, we will have the largest one-time increase in our industry. So far, orders are still at record levels, but the general consensus is that inflation has to kick in soon and orders will slow down.
Fabricated Metal Manufacturing
- We were able to refinance our bank debt on favorable terms. We still have a large volume of outstanding quotes where the owner/contractor is reluctant to start the applicable construction.
- In terms of our pipeline of contract opportunities, demand at market level is decreasing for new construction, but maintenance deferred from last year’s COVID interruption is filling the void for now.
- Shortages and pricing of American iron and steel products are delaying projects and availability of our emergency fittings. Some domestic stainless steel material pricing is now 14–28 times the price of imported material and not available for 12–16 weeks. For products going into the water market, these increases are being paid for by cities and utilities and ultimately the taxpayer. This limits the amount of funds available to improve our crumbling infrastructure.
- Labor shortages, raw material price increases and shortages, and power outage issues are all having a negative impact.
Machinery Manufacturing
- This is the worst market I have seen since 1975.
- We are quoting more projects, but we believe that this is due to our competition declining rapidly. While they have pulled back their operations, we have maintained or expanded many parts of our business to meet our customers’ needs. We’ve maintained a large inventory that allows us to ship anything either the same day or next day. Therefore, our supply chain for our customers is very important and responsive where others have fallen short.
- We see variations in sales from month to month that are hard to explain. Sales are up one month and then down the next. We would prefer a steady flow of business so that we can plan accordingly. Strange times we live in!
Computer and Electronic Product Manufacturing
- World supply issues as well as the political movement against small businesses are affecting us.
- Demand continues to outstrip supply across the board. We will bring on incremental capacity each quarter, limited by lead time of equipment and factory space, until the second half of 2022 or early 2023, if needed.
- We are having issues getting parts in to make and complete orders on hand.
Transportation Equipment Manufacturing
- Labor costs continue to rise, and supply-chain disruptions with major material components continue to drive production delays, increased costs and uncertainty.
- The Delta COVID-19 variant adds a level of uncertainty regarding the impact on our customers’ business, primarily emergency medical services and tourism.
- Today, the business demand is encouraging, but there are too many future uncertainties—i.e., inflation, available employees and the economic outlook—including continued supply-chain problems and the fact that COVID won’t go away. Add a dysfunctional government and runaway fiscal spending and it’s hard to be optimistic. We are proceeding cautiously.
Furniture and Related Product Manufacturing
- We continue to have unfilled employee positions, and the labor rate is increasing at faster pace than our product pricing. Skilled construction trades jobs continue to experience lots of market disruption from e-commerce and lack of job skills training in the education system.
Paper Manufacturing
- We are seeing a mild seasonal uptick at this time.
- It is impossible to find employees. We are having to work the ones we have way too hard.
Printing and Related Support Activities
- We are worried about how rampant inflation is for our materials and services and feel the economy is in for a jolt soon on this front. Because of this, we are worried about six months out, although we are busy now and appear to be busy for a while to come.
- Team members out with COVID is causing disruptions.
Food Manufacturing
- The lack of domestic tranquility simmers underneath the surface. This growing instability in the world—the disregard of civility and law—may not directly go to business activity, but it impacts morale and efforts at optimism for the future. The shutting in of domestic oil production while encouraging increases in foreign production/purchases and increasing foreign dependence in an ever-unstable world only adds to the fractured nature of things.
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