Monday, June 29, 2020

Dallas Fed: "Manufacturing Regains Footing After Epic Decline"

by Calculated Risk on 6/29/2020 10:39:00 AM

From the Dallas Fed: Manufacturing Regains Footing After Epic Decline

Texas factory activity rebounded strongly in June, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, climbed from -28.0 to 13.6, indicating moderate expansion in output following three months of record or near-record declines.

Other measures of manufacturing activity also pointed to a rebound in growth this month. The new orders index advanced 34 points to 2.9, its first positive reading in four months, with nearly a third of manufacturers noting an increase in orders. The growth rate of orders index pushed up 25 points but remained negative at -5.8. The capacity utilization and shipments indexes also returned to positive territory.

Perceptions of broader business conditions were mixed in June. The general business activity index surged 43 points but stayed negative at -6.1. The company outlook index climbed back into positive territory, from -34.6 to 2.7, with 29 percent of manufacturers noting improved outlooks, up from 12 percent last month. The index measuring uncertainty regarding companies’ outlooks retreated notably again to 9.1—its lowest reading since January. The positive reading still indicates increased uncertainty.

Labor market measures indicated virtually flat employment levels and shorter workweeks this month. The employment index remained negative but rose 10 points to -1.5. Fifteen percent of firms noted net hiring, while 17 percent noted net layoffs. The hours worked index rose from -22.8 to -4.3, with the still-negative reading signaling reduced workweek length.
emphasis added
This was the last of the regional Fed surveys for June.

Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

Fed Manufacturing Surveys and ISM PMI Click on graph for larger image.

The New York and Philly Fed surveys are averaged together (yellow, through June), and five Fed surveys are averaged (blue, through June) including New York, Philly, Richmond, Dallas and Kansas City. The Institute for Supply Management (ISM) PMI (red) is through May (right axis).

The ISM manufacturing index for June will be released on Wednesday, July 1st. The consensus is for the ISM to increase to 49.0, up from 43.1 in May. Based on these regional surveys, the ISM manufacturing index might even be above 50 in June.

Note that these are diffusion indexes, so returning to 0 (or 50 for ISM) means activity is not declining further (it does not mean that activity is back to pre-crisis levels).