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First Cut: General business conditions for Dallas Fed’s manufacturing sector were soft in April

The Dallas Fed’s general business conditions index in the Texas Manufacturing Outlook slipped to 2.0 in April from 6.9 in March. The index has continued to lose momentum after the rebound to 11.6 in February after two months of negative readings in December and January. The report included annual revisions.

The index for business conditions six months from now remained at 18.4 in April from March and has continued to rebuild its upward momentum after the plunge to 1.5 in December.

The bottom line is that the District’s manufacturers are seeing uneven activity month-to-month while underlying conditions remain consistent with modest-to-moderate expansion. The measure for economic uncertainty was up to 6.8 in April and was at its highest since the 15.6 in January when the government shutdown combined with worries about global growth and trade policy.  Some of the heightened worries should be alleviated by the first quarter GDP report that put growth at a solid pace domestically.

New orders rose substantially in April from March while order backlogs hovered just below neutral. Shipments increased slightly while delivery times and inventories fell. Employment moderated to a mild pace of expansion with the workweek expanding as hiring faded. However, gains in wages were on trend and strong.

Prices paid fell to 7.9 in April from 18.9 in March and hit the lowest level since 7.2 in April 2016. Prices received remained about on trend at 6.0 after 6.5. Input costs are down in spite of increase in energy and business still have some pricing power to pass on costs related to manufacture.

The Dallas-ISM equivalent index was 52.3 in April after 53.1 in March and not materially different than the 52.4 in February. While the Dallas equivalent has the weakest correlation to the ISM report, it is well aligned with the majority of the other District equivalents. The trend suggests that the ISM Manufacturing Index for April will be a little below the 55.3 in March but still consistent with temperate expansion for the factory sector.


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