Dallas Fed Manufacturing Outlook: Worsening Business Conditions

Written by Jill Mislinski

This morning we got the most recent Dallas Fed Texas Manufacturing Outlook Survey (TMOS). The latest index came in at -20.1, a 15 point decrease from last month's -4.9.

The Investing.com forecast was for a reading of -7.0.

Here is an excerpt from the latest report:

Texas factory activity increased for a third month in a row in December, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose from 5.2 to 13.4, indicating stronger growth in output.

Some other indexes of current manufacturing activity also reflected growth in December, but the survey’s demand measures showed continued weakness. New orders, an indicator of incoming demand, declined at a faster pace. The index has been below zero for five months and fell to -8.9 in December. The growth rate of orders index has been negative for more than a year and dipped 7 points to -14.3 this month. Meanwhile, the capacity utilization andshipments indexes posted their fourth positive readings in a row and inched up to 7.8 and 7.6, respectively.

Perceptions of broader business conditions weakened markedly in December. The general business activity index has been negative throughout 2015 and plunged to -20.1 this month. After pushing just above zero last month, the company outlookindex fell 10 points in December to -9.7, its lowest level since August.

Monthly data for this indicator only dates back to 2004, so it is difficult to see the full potential of this indicator without several business cycles of data. Nevertheless, it is an interesting and important regional manufacturing indicator. The Dallas Fed on the TMOS importance:

Texas is important to the nation’s manufacturing output. The state produced $159 billion in manufactured goods in 2008, roughly 9.5 percent of the country’s manufacturing output. Texas ranks second behind California in factory production and first as an exporter of manufactured goods.

Texas turns out a large share of the country’s production of petroleum and coal products, reflecting the significance of the region’s refining industry. Texas also produces over 10 percent of the nation’s computer and electronics products and nonmetallic mineral products, such as brick, glass and cement.

Here is a snapshot of the complete TMOS.

The next chart is an overlay of the General Index and the Future Outlook Index — the outlook six months ahead.

For comparison, here is the latest ISM Manufacturing survey.

Let's compare all five Regional Manufacturing indicators. Here is a three-month moving average overlay of each since 2001 (for those with data).

Here is the same chart including the average of the five. Readers will notice the range in expansion and contraction between all regions - this averages out to approximately zero for the average, which is flat and neither expanding nor contracting.