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Tuesday, May 26, 2015 12:13 PM

Dallas Fed Manufacturing Index Collapses: Lowest Production Reading in 6 Years, Orders Contract 7th Month, New Orders 5th Month

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Dallas Fed Manufacturing Index Plunges Below Any Economist's Estimate

Fed manufacturing surveys remain weak at best. Today the Dallas Fed Business Activity Index fell to negative 20.8, well below the bottom end of any Bloomberg  Estimate.

Contraction in the energy sector continues to pull the Dallas Fed report into deeply negative ground, to a headline minus 20.8 vs minus 16.0 and minus 17.4 in the prior two months. Production shows a turn for the worse, at minus 13.5 vs April's minus 4.7, as does employment, at minus 8.2 vs plus 1.8. New orders remain deeply negative, at minus 14.1 vs minus 14.0. Prices paid also fell further though the decline is easing, to minus 1.7 from minus 11.2.

The regional Fed reports all point to another slow month for the manufacturing sector which is struggling with energy contraction, especially evident in this report, as well as weakness in exports.
Dallas Fed Production Index Lowest in 6 Years

Orders Contract 7th Month, New Orders 5th Month

For additional details, let's dive into the Dallas Fed Texas Manufacturing Outlook Survey.
Texas factory activity declined again in May, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, fell to -13.5, its lowest reading in six years.

Other measures of current manufacturing activity reflected continued contraction in May. The new orders index held steady at -14.1, and the growth rate of orders index held steady at -15.2, marking the fifth and seventh negative reading in a row for these indexes. The capacity utilization index edged down to -11.6. The shipments index fell nearly 8 points to -13.2, with more than 30 percent of firms noting lower shipment volumes in May than in April.

Perceptions of broader business conditions worsened further this month. The general business activity index fell to -20.8 in May, its lowest reading since June 2009. The company outlook index moved down to -10.5, also hitting a low not seen since summer 2009.

Labor market indicators reflected employment declines and shorter workweeks. The May employment index declined 10 points to -8.2, after rebounding slightly above zero last month. Twelve percent of firms reported net hiring, compared with 21 percent reporting net layoffs. The hours worked index fell from -5 to -11.6.

Changes in prices and wages were mixed in May. Downward pressure on input costs abated, as the raw materials prices index pushed up toward zero, coming in at -1.7. The finished goods prices index edged down to -8.7, its fifth negative reading in a row and suggestive of falling selling prices. Meanwhile, the wages and benefits index remained positive and little changed at 14.7.
As I suggested last month, the jobs rebound in April was an outlier.

Mike "Mish" Shedlock

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