Dallas Fed Manufacturing Outlook Survey

 

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Jerry Bywaters of the DallasNine, “Share Cropper,” 1937, oil on Mansonite, Dallas Museum of Art

 

 

 

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TEXAS MANUFACTURING EXPANSION CONTINUES BUT AT A SLOWER PACE 

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Three months of building surge was this month for the Dallas Fed manufacturing report. The general activity index slowed 15 points to 21.4 which is under the lowe estimate but still an extremely favorable reading, and an arguably more favorable reading given that prior strength was pointing to unwanted capacity stress.

Production fell more than 15 points to 12.7 with new orders down 17 points to 8.3 and employment down 8 points to 10.8. Capacity utilization fell 10 points to 9.6 with hours worked, wages, and selling prices both cooling. Input costs, however, ticked higher to a 7-year high which is a reminder that demand in this sample is unquestionably robust.

Outlook measures for Dallas manufacturers also eased but remain very strong, which is the takeaway from today’s report. Watch tomorrow for a March update from the Richmond Fed for an additional read on slowing manufacturing growth.

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Comments from Survey Respondents 

Petroleum and Coal Products Manufacturing 

  • The steel tariffs are a real concern

Primary Metal Manufacturing 

  • The steel tariff could hurt.
  • Our business has had a sudden, dramatic change in outlook due to the new steel tariffs, We expect a large increase in volume and prices, but neither will be sustainable. The biggest uncertainty is the timing as to when the tariffs will be removed and the negative impact once that occurs, We expect a wild, unpredictable ride as there are also large, negative and unintended consequences which will hurt us. On balance, we will have temporary large increases in profits. We are fundamentally fair traders and not in favor of the heavy hand of government intervention, but we will enjoy it while it lasts.

Fabricated Metal Product Manufacturing 

  • The steel tariffs are a big issue for us. I’m ok with tariffs, but the uncertainty is making it difficult to price our product.
  • We are seeing continued strong activity, across many sectors. This market has been strong since September 2017 and continues.
  • The national rhetoric regarding steel tariffs immediately raised the price of steel significantly. We had a large amount of steel under contract, yet to be purchased, which will ultimately increase costs and reduce profits considerably.
  •  The recent steel tariffs could severely impact our business.
  • Steel tariffs may put a damper on our business because of the increase in the price of finished goods and a shortage of raw material.
  • We are still working on achieving full production-machinery restoration from the effects of Hurricane Harvey flooding.

Machinery Manufacturing

  • We are expecting to see a major increase in business this year over last year. Additionally, since we cannot find truly quality workers, we have gone to a workweek of six days, 12 hours per day until we either hire the right people or we accept longer delivery times. We are working both issues currently to determine which works for our customers. We expect that this trend will last over the next six months at a minimum.
  • Business remains very strong. Sales for January/February were up nearly 35% versus the same period last year, which was a great year.
  • Orders since Jan. 1 have declined. This is typical; however, orders normally pick up by early March. Quote activity has increased, which gives us the expectation of increased sales soon.

Computer and Electronic Product Manufacturing 

  • Tax and trade policies are helping the manufacturing industry in a big way, according to many of our capital-equipment customers. Exports will be up in six months.

Transportation Equipment Manufacturing 

  • We will likely have to raise prices due to the effects of aluminum tariffs.
  • Uncertainty regarding the pricing of steel and aluminum products (due to the potential impact of tariffs) is adversely impacting our capability to plan for future activity.

Food Manufacturing 

  • We buy bulk lentils, vegetables, and fortified rice, and commodity prices have been dropping or, at worst, remaining steady.

Beverage and Tobacco Product Manufacturing 

  • Aluminum is one component of our cost of goods sold.

Apparel Manufacturing 

  • Once again, the demand for military textile manufacturing is increasing exponentially.

Printing and Related Support Activities

  • We are busier than normal for this time of year, which is a good thing, and we have some nice projects in the works that could indicate an improvement in overall business activity for us and our industry. We are getting numerous price-increase notices from vendors, and I am hopeful we can pass along a minor price increase to cover our increase in wages, property taxes and health insurance.

 

Definition: 

The Dallas Fed conducts this monthly survey of manufacturers in Texas regarding their operations in the state. Participants from across the state represent a variety of industries. In the latter half of the month, the questions for the manufacturing survey are electronically transmitted to respondents and answers are collected over a few days. About 100 manufacturers regularly participate in the Dallas Fed survey, which began collecting data in mid-2004. Participants are asked whether various indicators have increased, decreased or remained unchanged. Answers cover changes over the previous month and expectations for activity six months into the future. The breakeven point for each index is zero with positive numbers indicating growth and negative numbers reflecting decline.

 

Source: 

Dallas Fed Manufacturing Outlook Survey

-R.W.N II

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