Another Day, Another Strong Manufacturing Survey

Monday’s monthly report from the Dallas Fed showed yet another strong reading on the manufacturing sector. The headline index tracking the region’s General Business Activity came in at the highest level in just under three years, rising 8.4 points to 37.3. Not only was that a multiyear high, but this month’s reading is also in the top 3% of all months since the start of the survey in 2004. Expectations also are optimistic with the index rising to the strongest level since September 2018. The indices for Company Outlook similarly rose to levels not seen since 2018.

Given businesses are reporting as more optimistic, uncertainty continues to fall. In fact, the Outlook Uncertainty Index fell to zero this month which indicates that uncertainty among the region’s manufacturers is no longer on the rise. While there is not nearly as extensive of a history of this index as the rest of the survey (only dating back to 2018), this was the first non-positive reading since May 2018.

With strong readings in broader measures of activity, the majority of indices in the report remain in the top percentiles of readings. The only exception is Inventories which is in the bottom 40% of readings after falling 3 points this month. On the other hand, there were several indices like those for New Orders and Employment which were at the highest levels on record. Those strong readings do come with a caveat though. Breadth in this month’s report was a bit mixed with just over a half-dozen indices falling month over month. Despite these indices all staying in the top decile of readings after those declines, we would note that the drops in the indices for Production, Capacity Utilization, and Delivery Times were historically large for a single month.

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Taking a more granular look at these indices, demand continues to grow at a historically strong clip. Both indices for New Orders and the Growth Rate of Orders rose to record highs. In spite of the acceleration in demand, the index for Unfilled Orders was actually slightly lower falling 1.4 points. That indicates that with surging new orders, backlogs continued to grow in April but actually at a slower pace than March. Even after that deceleration, though, Unfilled Orders sit well above the vast majority of historical readings. Shipments similarly pulled back ever so slightly in April indicating the region’s businesses are trying to match that demand.

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