Dallas Fed Activity Improves But Respondent Warns "Prospects For Better Are Dimming"

After peaking in February, Dallas Fed"s Manufacturing Outlook has slid almost constantly until July which just saw it bounce modestly from 15.0 to 16.8 (stil below May"s levels)

Reading The Dallas Fed"s breakdown reports,  one wuld think everything is awesome!.

The production index, a key measure of state manufacturing conditions, rose 11 points to 22.8, indicating output grew at a faster pace than in June.

Other measures of current manufacturing activity also indicated a pickup in growth. The new orders and the growth rate of orders indexes rose several points each, coming in at 16.1 and 12.2, respectively. The capacity utilization index moved up to 18.1 and the shipments index increased three points to 11.6.

Perceptions of broader business conditions improved again in July, with a sharp pickup in outlooks. The general business activity index edged up to 16.8, marking a 10th consecutive positive reading. The company outlook index jumped 15 points to 25.9, reaching its highest level since 2010.

Labor market measures indicated slightly stronger employment gains and longer workweeks this month. The employment index has been positive all year and edged up to 11.2, its highest reading since the end of 2015. Twenty-one percent of firms noted net hiring, compared with 9 percent noting net layoffs. The hours worked index ticked up to 9.8.

Prices and wages continued to rise in July. The raw materials prices index held steady at 15.5, while the finished goods prices index moved up slightly to 5.6. The wages and benefits index remained somewhat elevated at 20.6.

Expectations regarding future business conditions continued to reflect optimism. The indexes of future general business activity and future company outlook held steady at 31.6 and 34.8, respectively. Other indexes of future manufacturing activity showed mixed movements but remained solidly in positive territory.

But, respondents did not seem to be so exuberant...

• The foreign competition for new equipment is extremely competitive and our company is not able to match their selling prices.


• Things are going poorly in the economy. We have no projects, and business is slow.


• We are experiencing the summertime blues. Business is very dull July to date.


• We are feeling more confident about the economy improving. More buyers seem to be more confident and placing orders with increased volumes and deliveries further into the future.


• One huge order has spurred our manufacturing. However, nothing similar is expected in the near future.


• There has been a notable decline in orders from energy industry customers over the past 30 days given the drop in oil prices. There is very little visibility on customer demand in the second half of the year.


• The drop in oil prices in 2015 forced us out of our comfort zone and into new industries and locations. We have found that manufacturing technology from the oil industry applies equally well to defense, aerospace, heavy vehicle manufacturing and power generation. As oil recovers, we will also benefit from working in these new markets.


• The increases in business are small but measurable. We have been trying to add employees over the last six months, with no qualified candidates available.


• Grocery store deli and fast-food chain activity remains fairly slow. We are seeing increased activity, with convenience store remodels driven by increased food offerings.

And what about this!!

• I cannot explain it, but we are slower than we have ever been at this time and it seems like we are not the only ones. This is crazy how summer-vacation mindset seems to have set in and companies are just not committing to projects. Most everyone I have spoken to in the graphic arts community is complaining of the same thing. If this doesn’t turn around quickly, there will be some significant cutbacks around here—something that will be very painful, as we are down to only talented workers with no fat to trim.

And finally there"s this...

• Washington, D.C., is still a significant contingent factor for a better or worse outlook. Prospects for better are dimming.

US Services Economy Hits 15-Month Highs And 5-Month Lows: "Companies Are Becoming More Cautious"

Markit"s Services PMI tumbled to 5-month lows in February (down to 53.8) - erasing the post-Trump-bounce - as rates of expansion in activity, new work and employment all eased. The February drop in PMI is the largest in a year as Markit warns that "business optimism has mellowed.. and companies are becoming more cautious."

Of course that is the absolute opposite of what ISM Services reports - surging higher to a 15-month high at 57.6 (well above expectations)

ISM breakdown shows output and employment all rising faster - the exact opposite of Markit"s PMI data.

With a solid bounce in new orders - the opposite of what PMI data showed.

Commenting on the PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

“Taken together, the PMI survey readings for the first two months of the year suggest the economy is growing in the first quarter at a respectable annualised rate approaching 2.5%.

“The burning question is whether the February slowdown merely represents some pay-back after a strong start to the year for US businesses, or whether it’s the start of a more entrenched slowdown.

“A warning clue rests with the business expectations index, which indicates that business optimism has mellowed back to its pre-election level, suggesting that companies are becoming more cautious with regard to spending and hiring.

“However, companies continue to report buoyant domestic demand, especially from consumers, and continue to take on staff in reasonable numbers, the rate of hiring having slowed only modestly. The February survey is broadly consistent with 175,000 payroll jobs being added, which represents a pace of hiring that will do little to deter the Fed from delaying its next rate hike.”

The overall composite PMI (Services plus Manufacturing) dropped to its lowest since September.

Stagflation Shock: ISM Shows Input Costs Soaring At Fastest Since 2011

Input cost inflation is soaring at its highest since September 2014 according to Markit"s US Manufacturing PMI survey (which surged in January to 55.0 - slightly less than the 55.1 prelim print - the highest since March 2015). New orders accelerated but employment slipped and despite the surge in costs, factory gate charges increased only modestly. Despite disappointing "hard" data from durable goods, ISM survey data confirms the bounce (highest since 2014) but Prices Paid spiked to its highest since 2011 (and export orders dropped).

Hard vs Soft data... ISM CEO Holcomb summed it all up perfectly: ISM GAIN DRIVEN BY HOPES, EXPECTATIONS UNDER TRUMP

Prices Paid are soaring... (and export orders dropping)

ISM notes that...

• Commodities Down in Price: None.


• Commodities in Short Supply: None.

So, to be clear, everything is up in price, but there is no shortage of anything.

New Orders were stagnant...

And the full breakdown...

Almost every ISM respondent is exuberant...

• 
  

  “Demand very steady to start the year.” (Chemical Products)

  
  


• 
  

  “January revenue target slightly lower following a big December shipment month.” (Computer & Electronic Products)

  
  


• 
  

  “Strong start to the new year. Production is increasing and we are adding capacity.” (Plastics & Rubber Products)

  
  


• 
  

  “Business looks stronger moving into the first quarter of 2017.” (Primary Metals)

  
  


• 
  

  “Economic outlook remains stable and no current effects of geopolitical changes appear to be penetrating market conditions.” (Food, Beverage & Tobacco Products)

  
  


• 
  

  “Sales bookings are exceeding expectations. We are starting to see supply shortages in hot rolled steel due to the curtailment of imports.” (Machinery)

  
  


• 
  

  “Year starting on pace with Q4 2016.” (Transportation Equipment)

  
  


• 
  

  “Business conditions are good, demand is generally increasing.” (Miscellaneous Manufacturing)

  
  


• 
  

  “Conditions and outlook remain positive. Raw material prices are stable resulting in stable margins. Asset utilization remains high.” (Petroleum & Coal Products)

  
  


• 
  

  “Steady demand from automotive.” (Fabricated Metal Products)

  
  

Commenting on the final PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

“The US manufacturing sector has started 2017 with strong momentum. Despite exports being subdued by the strong dollar, order books are growing at the fastest pace for over two years on the back of improved domestic demand.

“With optimism about the year ahead at the highest since last March, the outlook has also brightened.

“Production is consequently growing at the strongest rate for almost two years and inventories are rising at a rate not seen for nearly a decade as firms respond to higher demand, suggesting the goods-producing sector will make a decent contribution to first quarter GDP.

“With input costs also rising at the steepest rate for over two years, and hiring sustained at an encouragingly solid pace as firms expand capacity, all of the survey indicators point to the Fed hiking interest rates again soon.”