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First Cut: Dallas Fed manufacturing general business conditions seen as weak in July, but detail indexes aren’t so bad

The general business conditions index in the Dallas Fed’s Texas Manufacturing Outlook Survey improved to a still weak -6.3 in July after -12.1 in June.  However, it remained in contractionary territory for a third month in a row. The index for conditions six months from now improved to 6.0 in July after briefly ticking below neutral to -2.7 in June. Still, these remain among the lowest readings since late 2016. Assisting in lightening the outlook for conditions was reduced uncertainty. The index fell to 9.7 from the series high of 21.6 in the prior month. Nonetheless, conditions remain more uncertain than in the first months of 2019.

The index is not calculated from components. The survey subindexes were generally in better shape in July after June. New orders rose (5.5 in July after 3.7 in June), although backlogs were contracting (-2.8 after 3.4). Shipment rebounded (10.2 after 1.7). Employment was much stronger (16.0 after 8.8) and the workweek retraced some loses in the prior month (6.6 after 4.7). Wages continued to lose upward momentum, although these are still expanding healthily (20.1 after 22.7).

Delivery times were the widest since -4.9 in January 2017 (-4.8 in July after -0.3 in June) while finished goods inventories trended lower (-10.6 after -6.1) and contracted for a fourth straight month.

Prices paid were not much changed at 17.0 in July from 16.4 in June. Input costs are rising in part on higher energy costs, but the pace is modest, at most. Prices received slipped to -1.7 in July from 1.2 in June and was the first negative since -4.5 in July 2016. Manufacturers may be seeing less upward pressures for input costs, but they are also significantly less able to pass on any increases.

The Dallas-ISM equivalent index was 51.5 in July, the same as in June. The correlation between the components of the Dallas survey that most closely resemble those in the ISM Manufacturing Index is the weakest among the five District Bank reports, although it has been tracking well in the past year or two.  With no change, it suggests that the ISM Manufacturing Index for July will look much the same as the 51.7 in June.

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