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First Cut: Dallas Fed general manufacturing conditions index remained negative in November

The general business conditions index in the Dallas Fed’s Texas Manufacturing Outlook Survey remained negative at -1.3, although it was a bit higher than the -5.1 in October. The index for conditions six months from now was up to 7.3 in November after 2.4 in October and was the strongest reading in seven months. However, the index for uncertainty was also up, reaching 17.1 in November after 12.1 in the prior month. Manufacturers in the region are still sorting through recent developments and the lack of definitive progress for a trade agreement with China. There is a sense of the resilience in the economy in spite of unresolved risks without dismissing that these could easily intensify.

The general business conditions index is not computed from components and therefore the details in the report can tell their own story. However, for November, the headline and these seem in agreement.

New orders remained in contraction for a second month at -3.0 in November after -4.2 in October. Order backlogs continued to contract for a fifth month in a row at -7.7 after -9.4 in the prior month. Production felt the pinch of slow orders and less slack in the pipeline at -2.4 in November after 4.5 in the prior month and was the first contraction since -5.6 in June 2016. Capacity utilization was also contracting at -5.3 after 3.6 and the first negative since -8.2 in June 2016. The Dallas District is experiencing the wider manufacturing recession that has been seen in the ISM Manufacturing Index in recent months.

Delivery times were negative for a second month, although not much changed at -4.6 in November after -4.2 in October. The contraction in inventories sharpened to -10.6 after -4.5 and extended a string of below neutral readings to eight months.

New hiring slowed to a crawl with the employment index at 0.9 in November after 11.0 in October and was the lowest since -3.0 in December 2016. The workweek narrowed for the first time since October 2016 with the November index at -4.3 after 4.7 in the prior month. Wage increases remained about on track at 21.1 after 22.2.

The index for prices paid dipped to 17.8 in November after 22.8, reflecting the lower prices for energy and other commodities. Pricing power was largely absent with the prices received index at 1.9 after 4.8.

The Dallas-ISM equivalent index fell to 48.0 for November after 50.3 in October. It lines up with the other regional surveys so far in suggesting that softness in conditions for manufacturing remains in place and there is little chance that the ISM Manufacturing Index for November will rise about the 50-mark when the data is reported at 10:00 ET on Monday, December 2.

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