This morning’s report on manufacturing activity in the Dallas area showed contraction for the 10th straight month as the bust in oil prices weighs on the region’s industrial economy. While economists were expecting the headline index to come in at a level of -6.0, the actual reading came in at -12.7. This is the longest streak of negative headline readings since the last recession when we saw a string of 25 straight months of contraction in the index. While the headline index was weaker than expected, the internals were a relative bright spot as things appear to be getting less worse.
The table below summarizes the different components of the Dallas Fed report based on current conditions and six-month outlook. For both current conditions and the six-month outlook, the majority of components showed improvement on a month over month basis in October. Of the seventeen components shown, 12 showed improvement in both current conditions and the six-month outlook. So while conditions are still negative, they are moving in the right direction.
In the chart below, we have created diffusion indices for current conditions and the outlook based on the six-month average of the net number of components showing improvement on a monthly basis. In both cases, the average net number of components showing improvement is positive. More importantly, though, the diffusion index for current conditions has risen for seven straight months to its highest level since crude oil prices began to collapse in mid-2014.