Today’s Dallas Fed report on the manufacturing sector in the Texas area showed that activity for the sector contracted for the eleventh straight month, which is the longest such streak since the last recession. While the report was negative, it still managed to improve versus October’s level and exceed consensus expectations. While economists were looking for the headline index to come in at the same level as October (-12.7), the actual reading came in at -4.9. Regarding the outlook for six months from now, the headline index increased from 4.1 up to 7.3.
The table below breaks down this month’s report by each of the reports subcomponents. In terms of current conditions, more components are now in positive territory than negative, while breadth was evenly split between gainers and losers. The biggest gainers this month were both employment related as Hours Worked and Employment moved back into positive territory. On the downside, the categories of Inventories and Prices Paid saw the largest declines. In terms of the six-month outlook, just two components are now in the red (Delivery Time and Inventories-Finished Goods).
The chart below provides a diffusion index of the Current Conditions and Six Month Outlook components of the Dallas Fed report on a six-month moving average basis. In terms of Current Conditions, the Diffusion Index is up to 5.17, which is near the five-year high of 5.33 from April 2014. Although current conditions saw significant improvement, the Diffusion Index for the six-month outlook has been moving erratically in positive territory.