This morning the Dallas Fed updated its July reading on the manufacturing sector.  Overall, the report was mixed showing conditions continue to deteriorate but at a slower rate than earlier this year while businesses remain cautiously optimistic.  The reading on general conditions remains negative at -3.0, but that was up from -6.1 in June.

Although current conditions are still weak, companies do not appear to be overly worried about their own futures.  While slightly lower this month, expectations for general business activity six months in the future remain positive and the reading for company outlook is likewise positive; rising another 3.2 points this month.  This month’s survey also included some special supplemental questions including the following: “Given your current outlook, how likely is it that your business will permanently shut down within the next 12 months?”.  To that question, 91.2% reported not likely. Of the remaining respondents, only 3.1% reported that permanent closure is very likely.

While most businesses are not expecting closures and have a generally more optimistic tone, it is perhaps more fitting to say they are cautiously optimistic.  While a newer series only dating back to 2018, meaning there is not much history to compare to, the index for the uncertainty of company outlook did rise to 20.9 from 9.1 last month.  Although off the highs of the past few months, it remains in the upper end of the range since this question began to be tracked.  The commentary section backed this up with comments like: There is still a lot of uncertainty as COVID numbers surge, There are many more ‘what-ifs’ questions to be answered, and We feel uncertainty will remain.

Those results are echoed throughout other individual categories as well. In the table below, we break down the report by each of its components for both current conditions and the six-month outlook.  Again, companies seem to be cautiously optimistic with every reading continuing to be positive but several categories falling in July. In terms of current conditions, every category with the exception of General Business Activity, Inventories, and Capital Expenditure are now positive and returning to more historically normal readings. Meanwhile, the indices for inventories and Prices Paid for Raw Materials were the only ones lower in July.

Similar to how the survey results for future outlook are actually a bit mixed, the same can be said for the indices measuring various labor market aspects.  The index for employment and hours worked tipped positive in July indicating businesses are on net hiring and increasing hours.

As employment rises so too have wages and benefits, but growth in this area does remain muted.  As shown below, while the index for Wages and Benefits is positive indicating companies plan to increase wages and benefits both in the immediate term and six months out, the reading remains lower than most other months over the past decade. In other words, businesses are bringing people back to work and are raising wages, but at a slower rate than pre-COVID.  Click here to view Bespoke’s premium membership options for our best research available.


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