Dallas Fed’s survey reveals cons of hawkishness

The Dallas Fed’s Texas Manufacturing survey has revealed that the Fed’s hawkish interest rate hikes have had a negative impact on the economy. The August survey found that the production index, which measures factory activity in the state, fell again in August, dropping 6 points to -11.2, the lowest level since May 2020.

Weakness has also been seen in the new orders index, which has been in negative territory for more than a year. Perceptions of broader business conditions continued to worsen in August, with the general business activity index remaining negative but ticking up.

Uncertainty regarding outlooks continued to rise, with the corresponding index remaining positive, though it fell eight points in August to its lowest reading in more than two years. The survey respondents paint a mostly negative picture about the Federal Reserve’s monetary tightening policy and its impact on business.

Some respondents in the computer and electronic product manufacturing industry said that high interest rates are affecting industrial production like never before, and that interest rates have placed an inverted incentive to grow due to a major slowdown in capital equipment expenditures.

Others also noted that customers are reducing or canceling orders due to softening end-use demand, and that customer orders have come to a sudden halt. Warning signs of a slowing economy could also be seen in the machinery manufacturing industry, with sales teams working harder but less results, projects being postponed, and payments increasingly protracted.

A survey respondent from the transportation equipment manufacturing industry said that interest rates are killing their industry. Fed Chairman Jerome Powell remains to be seen on whether he is listening to these concerns, as he said taming inflation remains the top problem for the Fed to solve and that further interest rate hikes might be necessary.