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.

Dallas fed, manufacturing

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.

Dallas fed manufacturing

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.

Dallas fed company outlook

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.

Dallas fed manufacturing

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.

Delivery times

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.

Dallas fed uncertainty

Philly Fed Flips the Script

Today’s release of the Philadelphia Fed’s Business Outlook survey essentially saw the opposite results of last Friday’s Empire Fed release.  Whereas the New York Fed’s headline number surged, the Philly Fed reading dropped from 27.4 to 17.6, well below expectations of 21.4.

Philly fed business conditions

Even though current conditions indices of the two regional Fed surveys released so far this month mirrored one another, both were on the same page for future expectations. Like the Empire Fed, the Philly Fed saw broad declines across expectations indices. In fact, the only index that rose month over month was Unfilled Orders.

Philly fed results

The April report showed a notable slowing of demand as New Orders fell 8 points, and that was the best of any demand-related index.  Shipments and Unfilled Orders both dropped double digits. While still indicative of growth, just at a slower rate, these indices have fallen from upper quintile readings down to the 60th percentile range. Expectations indices are far more depressed.  New Orders and Unfilled Orders are only in the 5th and 6th percentiles of their historical ranges, respectively.  Ironically, Unfilled Orders was also the only expectations index to move higher in April. Inventories remain more elevated for both indices for current and future conditions. The former rose back into the upper decile of its range as the latter moderated from a 99th percentile reading last month.

new orders, shipments

As we noted earlier this week, one hopeful sign for supply chains from the Empire Fed survey was a dramatic improvement in Delivery Times.  That was echoed in today’s release. The index sat just off record highs last month but after its third-largest month over month decline on record, the index has fallen all the way back down to 17.9 which is the lowest level since last February. Responding firms also report that they expect delivery times to decline in the future meaning more improvements in supply chains are expected.

Delivery times

Even though supply chains might not be as constrained, that does not mean firms are not paying less.  The index for Prices Paid hit a new high for the pandemic with the index rising to 84.6.  That is now the highest reading since June 1979. As for how those increases are being passed to consumers, Prices Paid remain off the peak from this past November with only a slightly higher reading month over month in April.

prices paid

While Prices Paid came close, it was not able to set a record high this month. The index for Number of Employees however did. Moving higher for the third month in a row, this index hit a new record high of 41.4. That means Philly area manufacturers are taking on the highest number of new workers since the beginning of this survey in 1968! The average workweek remains historically elevated and off of recent lows, but that is also well below the highs earlier in the pandemic.  Expectations however saw the first negative reading since February 2016. In other words, with a larger number of new hires coming on board, the average workweek is expected to shorten in the near future. Click here to view Bespoke’s premium membership options.

Philly fed labor

Bespoke’s Morning Lineup – 4/6/22 – Hard Time to be a “Vampire”

See what’s driving market performance around the world in today’s Morning Lineup.  Bespoke’s Morning Lineup is the best way to start your trading day.  Read it now by starting a two-week trial to Bespoke Premium.  CLICK HERE to learn more and start your trial.

“Bond investors are the vampires of the investment world. They love decay, recession – anything that leads to low inflation and the protection of the real value of their loans.” – Bill Gross

It’s looking like it’s going to be one of those days.  Futures were just modestly negative overnight but then started to really weaken as Europe opened for trading and things haven’t stabilized since.  The S&P 500 faces losses of around 1% at the open with the Nasdaq down over 1.5%.  If equities were looking to rally coming into the week, yesterday’s Fed commentary put at least a temporary stop to that. Interest rates are higher across the curve and the 2s10s yield curve has steepened well out of inverted territory, but that comes along with yields on the 10-year above 2.6% to its highest level in just over three years.

The economic calendar is light today as weekly mortgage applications were the only release, and they fell 6.3% following a 6.8% last week and an 8.1% decline the week before that.  Besides that, Energy inventories will be released at 10:30 and the Minutes from March’s FOMC meeting will be released at 2 PM.  Philly Fed President Harker and Richmond Fed President Barkin will also be speaking this morning.

Read today’s Morning Lineup for a recap of all the major market news and events from around the world, including the latest US and international COVID trends.

For bond investors, these days are tough indeed.  With inflation rampant around the world and central banks finally putting the brakes on the gravy train of liquidity, the increase in interest rates has been relentless with bond prices seeing some of their largest declines in years.  A case in point is the iShares 20+ Year US Treasury Bond ETF (TLT).  It’s already down 13% YTD and indicated to open lower today by another 1%.  The chart below shows historical drawdowns from record closing highs in TLT since its inception in late 2002.  Based on where the ETF is trading this morning, it has now declined 26% from its last record closing high back in early August 2020.  Throughout its history, there have only been a handful of other periods where TLT ever experienced a peak to trough decline of more than 20%, and the only other time it dropped more was coming out of the Financial Crisis.

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The Closer – Markets Wake Up Toa Screeching Hawks, Real Yield Surge, Trade Insight – 4/5/22

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Looking for deeper insight into markets?  In tonight’s Closer sent to Bespoke Institutional clients, we begin tonight with an overview of today’s Fedspeak and the price action in response.  We then take a look at real rates followed by the US trade deficit before finishing with an update on delinquency data for the month of February.

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