So much for a recovery in the state of business activity in the Dallas Fed region. In today’s report from the Dallas Fed on Business Conditions in the area, the overall index of General Business Activity declined from -13.9 down to -20.8. Economists were actually forecasting this index to improve to -8.0. While the decline is a disappointment, it is still well above its lows from earlier this year. Looking at the commentary from various industries generally shows a trend where demand is soft, but what really stands out is the concern over new Department of Labor overtime rules. One respondent went so far as to note that, “what the federal government currently decides to spend its time on is almost always neutral or detrimental to improving the economy.”
The table below summarizes the internals of this month’s report in terms of both current conditions and the six-month outlook. For current conditions, just five out of seventeen of the categories listed below saw a m/m increase with the biggest declines coming from New Orders, Capacity Utilization, Production, and Shipments. In terms of expectations, the breadth of the report was even worse with just two components showing sequential improvement. The categories where business owners are expecting the most weakness is in Hours Worked and New Order Growth. The drop in expectations for hours worked is no doubt the result of the new overtime rules that so many manufacturers highlighted. In fact, that component is now at its lowest level (-4.4) since February 2009.
With the data above, we have created six-month average diffusion indices of the Dallas Fed report for both current conditions and the six-month outlook. Not surprisingly, this month’s weakness brought down both diffusion indices. However, while the current conditions diffusion index saw only a small decline (2.00 down to 0.67), the diffusion index for the outlook fell back down close to what are the lowest levels of the last ten years.