Dallas Fed Manufacturing Index’s Mixed Messages

On the surface everything revealed by Monday’s Dallas Fed Manufacturing Index reading is pointing in the direction the Federal Reserve wants to see. Employment is cooling and inflation pressures are giving signals fading, though, in reality, this is not the case with the US economy at large.

In reality, order volumes are down versus prior quarters. There is less panic buying going on. Inventories are beginning to go down. Lead times given to customers are beginning to decrease as input of new orders slows down. The slowdown is consistent with normal seasonal factors but a long way below last year’s very high fourth-quarter order level.

It true to say supply-chain problems have decreased, but recession is coming, then layoffs start. Supply-chain disruptions and delayed project schedules are negatively impacting the US output and utilization. Inflation is decreasing demand levels.

Profitability comes under strain as steel prices decline, while labour and overhead costs remain elevated due to inflation. The US economy is still running strong; however, despite assurances by Fed policymakers, some analysts believe that recession is inevitable and that the economy will contract within the next six months.

Analysts are even very concerned about the volume of future business activity. They see customers pulling back their plans for expansion but still planning for the future. Opportunities have been a little slower over the past two months.

Inflation pressure continues to increase our cost of goods sold. Staffing is still tight in Dallas–Fort Worth, but we are seeing more stability. The cost of capital is unbearable for small businesses and will delay or reduce expenditures or hiring unless business drives change.

Employment 5.9 vs 17.1 last month
Hours worked -1.0 from -0.1 last month
New orders -20.9 from -8.8 last month
Production 0.8 vs 6.0 last month
Raw material price paid 22.6 vs 32.0 last month
Prices received 13.9vs 22.2 last month month
Shipments -7.6 vs -1.6 last month
Growth rate of new orders -19.9 vs -13.2 last month
Finished goods inventories 2.2 vs -12.6 last month
Wages and benefits 36.5 vs 36.7 last month
Capital expenditures 9.3 vs 7.1 last month