Dallas Down About the Future
It was another weaker than expected regional manufacturing report this morning as the Dallas Fed’s survey came in at 1.8. The index was expected to decline, but to a more modest reading of 3.5 from last month’s level of 8.7. With expectations declining hand in hand, this report indicates southern manufacturers have seen a significant deceleration in growth and also expect that to continue in the future as the indices for current and future conditions are around the weakest of the pandemic.
Current condition indices out of Dallas more closely resembled the results of the Philly Fed survey last week with weak breadth and readings falling into the middle of their historical ranges. However, like both the Philly and Empire Fed readings, expectations are deteriorating much more quickly than current conditions. As shown below, while many current condition indices are at worst in the middle of their historic ranges, some expectations indices have fallen into the bottom decile of readings after historically large declines month over month in April. For example, the decline in expectations for New Orders ranks in the bottom 1% of all month-over-month moves.
Two indices for current conditions were in contraction in April. The first was inventories while the other, and more negative, was company outlook. This index is now at its lowest level since the historic lows set in the spring of 2020. While still positive, the same can be said for expectations as they have breached new lows as well. That means on net more reporting firms are seeing economic conditions deteriorating than improving.
At the moment, demand has held up with the index for New Orders ticking up slightly though it is well below levels set earlier in the pandemic. As such, Unfilled Orders are still growing but at a slower rate as Shipments saw a modest increase off of post-pandemic lows. Again, in spite of any improvements reported in current conditions, Texas manufacturers do not expect much good to come on the horizon. The monthly declines in expectations for New Orders and New Order Growth Rate rank in the bottom 1% and 2%, respectively, of all monthly changes. While it was not as large of a drop, shipments similarly experienced a sharp decline ranking in the bottom few percentiles.
As for one silver lining of the report, there was further evidence of easing of supply chain stress with the Delivery Time index falling to 21.2. This index has been consistently falling over the past year. Expectations saw a coincident decline.
The Dallas Fed also includes in the report an index on uncertainty; a newer index only dating back to 2018 tracking the change versus the prior month in the firm’s uncertainty about company outlook. This index has returned to the upper end of its range near 30. That is slightly below the January reading for the highest levels in the series’ history outside of the beginning of the pandemic.
Be sure to check out tonight’s Closer which will provide an update of our Five Fed Manufacturing Composite, which combines these Dallas Fed readings with those of the Empire and Philly Fed surveys to gauge overall national manufacturer activity. Click here to view Bespoke’s premium membership options.