The Federal Reserve Bank of Dallas has released its report for manufacturing activity in the month of June. Some regions are seeing continued slowing growth, but the Dallas Fed district went up back into positive territory in June from a contraction in May. The general activity index rose to 5.8 in June from -5.1 in May.
What is interesting is that the production index, a key measure of state manufacturing conditions, rose from 5.5 to 15.5 and that is its strongest reading in 15 months. Labor market indicators reflected stronger labor demand growth and steady work weeks, rising from 8.5 to 13.7 this month.
The new orders index rose to 7.9 after three months of virtually flat and that suggests that demand finally grew after staying flat since February. Similarly, the shipments index rebounded to 9.6 after two months of near-zero readings; and the report’s capacity utilization index rose from 5 to 13.3 to its highest level since early 2011.
The Dallas Fed district is said to be very diverse but it is also one which has a larger oil, gas, and energy exposure than other Fed districts. Why that matters is that the growth has kicked back up despite a large drop in the price of oil. Some 24% of the firms surveyed noted improvement in the level of business activity in June, up from 15% last month, and the company outlook index edged up from 4.7 to 5.5.
Things will have to get better soon or this may be a one-off if the Expectations component is correct. The report noted, “Expectations regarding future business conditions slipped in June. The index of future general business activity edged down from 4.3 to 1.3. The index of future company outlook also fell three points from its May level, coming in at 8.4. Indexes for future manufacturing activity moved up slightly in June, pushing further into positive territory.”
The Dallas Fed is not generally a major market-moving figure. Still, this is one of the few reports which rose rather than one which turned in slower growth or some tendency toward negative growth or contraction.
JON C. OGG
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