Dallas Fed Manufacturing Report Shows Deep Declines in Activity

It was just on Friday that 24/7 Wall St. addressed a jobs report in Texas looking far rosier than reality. We also suggested that much of the region’s manufacturing jobs and businesses remain at risk. Now we have word from the Federal Reserve Bank of Dallas that manufacturing activity in the Texas region has gone much further south.

The Dallas Fed Manufacturing Survey for the month of January showed that the General Activity Index fell to -34.6. The reading of -20.1 from December was revised even lower to -21.6. What really hurts here is not just that the drop was worse, but Bloomberg showed an Econoday consensus estimate of -14.0 and a range of -17.0 to -10.0.

In short, the manufacturing activity has taken it on the chin far worse than anyone was officially projecting. This was also the 13th month of contraction.

While general activity includes many issues, the Production Index for January fell all the way to -10.2 from a positive reading of 12.7 in December. Production had been holding up with positive readings, but this means that the new orders of the past that became backlog are now rolling off and not being bolstered by business already recorded on the books.
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The Dallas Fed report’s first sentence showed that Texas factory activity fell sharply in January. Other key data points were seen as follows:

• The survey’s demand measures — the new orders index and the growth rate of orders index— led the falloff in production with negative readings last month and pushed further negative in January.
• The new orders index edged down to -9.2, and the growth rate of orders index fell to -17.5, its lowest level in a year.
• The capacity utilization index fell 15 points from 8.1 to -7, and the shipments index also posted a double-digit decline into the red at -11.
• The general business activity and company outlook indexes fell to their lowest readings since April 2009, falling 13 points to -34.6, and the company outlook index slipped to -19.5.
• The employment index dropped from 10.9 to -4.2, with 17 percent of firms noting net hiring and 21 percent noting net layoffs. The hours worked index plummeted 23 points to -9.2, suggesting a sharp pullback in employee hours.
• The survey’s price measures remained negative in January, but wages continued to rise.
• The raw materials prices index has been negative for seven months and held fairly steady at -8.6.
• The finished goods prices index has been below zero for more than a year and moved up from -15.5 to -9.6.
• The wages and benefits index stayed strongly positive but dipped from 20.2 to 16.5.
• The index of future general business activity fell 22 points to -24, and the index of future company outlook fell to -1.3, its first negative reading in nearly seven years.

Data for the January survey were collected between January 12 and January 20, and the report was based on responses from 118 Texas manufacturers. Firms are asked each month whether output, employment, orders, prices and other indicators increased, decreased or remained unchanged over the previous month.