After showing a nice improvement in November, the Dallas Fed Manufacturing survey for December took a sharp turn for the worse dropping to its second lowest reading since 2009. While economists were expecting the headline index to come in at a level of -7.0, the actual level was considerably worse at -20.1. Today’s report was definitely a disappointment, but it should not have come as too much of a surprise. As we noted in our Morning Lineup, “Judging by an earlier report from the Dallas Fed which noted that bankruptcies this quarter are at their highest rate since the Great Recession, we wouldn’t hold out too much hope for an upside surprise.”
The chart below shows the historical readings of the Dallas Fed Current Conditions and Six Month Outlook indices going back to 2005. As shown in the red line, December’s reading of -20.1 is close to the lowest levels since the last recession with the only weaker month being -20.8 back in May. December’s negative reading also means that the headline index was in negative territory for all of 2015. The only other year since 2004 that the index went “o-fer” the year was 2008.
The table below breaks down the m/m change in each of the components that make up the Dallas Fed report. For both current conditions and the six-month outlook, breadth was pretty poor. For current conditions, just six of sixteen components were up relative to November, with the biggest increases coming in Production and Hours Worked. On the downside, the biggest declines were in Unfilled Orders and Company Outlook. What is interesting to note here is that no component saw a larger decline than the overall General Business Activity Index. In terms of outlook, this month’s report was ever weaker than current conditions. As shown in the right side of the table, only three of sixteen components were up this month. There’s clearly not a lot of optimism right now in this region of the country.