Dallas Fed Shows Input Costs Rise Handily in September Texas Manufacturing Outlook

The Dallas Federal Reserve showed that the Texas Manufacturing Outlook Survey showed an increase for the month of September. Today’s gain was to 10.0 from 6.4 in August and that suggests stronger output growth for the month. While this report does not really move markets, it shows how significant input costs (particularly oil and energy) can impact business conditions.

Most sectors of the report were higher although broader business conditions were mixed:

• new orders index rose to 5.3 following a reading of zero last month, suggesting a pickup in demand.
• capacity utilization index advanced from 1.7 to 9.3, largely due to fewer manufacturers noting a decrease.
• shipments index rose to 4.5, bouncing back into positive territory after falling to -2.3 in August.
• general business activity remained slightly negative but edged up from -1.6 to -0.9.
• company outlook index was positive for the fifth month in a row but fell slightly to 2.4 from a reading of 4.1 in August.

There is one significant issue here, although perhaps the latest drop in energy prices will help the October report. The raw materials price index jumped nearly 12 points to 22.5 due to a sharp rise in input costs, but the finished goods price index held steady at -1.3 due to what is likely a slight decline in selling prices.

Texas also saw some “benefit” inflation as the wages and benefits index rose from 13.5 to 15.4, although the majority of manufacturers continued to note no change in compensation costs.

Here is the outlook ahead: 52% of respondents anticipate further increases in raw materials prices over the next six months and 30% expect higher finished goods prices.

Data were collected from September 11 to 19, and 97 Texas manufacturers responded to the survey. The next report for October will not come until October 29.

We would note that with September 19 being that last day for data collection and with September 15 being the mid-point of the time range of the survey that energy prices have come down handily. Oil was above $100 on September 15 and it had fallen down to $92 by the last day the data applies to.

Cost pressure on raw materials is there right now, but this may have already abated somewhat.

JON C. OGG