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First Cut: Dallas Fed manufacturing conditions index plunges to series low for March, uncertainty index sky-high

The general business conditions index in the Dallas Fed’s Texas Manufacturing Outlook Survey plunged to a series low of -70.0 in March after 1.2 in February. The six-month outlook index declined to -39.5 after 18.0, and was the lowest since -41.3 in December 2008.  The uncertainty index went sky-high to 62.6 in March after 11.0 in February. The index has only limited history, but hasn’t seen anything like this before.  The dramatic moves in the indexes aren’t really a surprise in the circumstance, but will add to the sense of unease about the prospects for the US economy while so much activity is in lockdown to prevent rapid spread of the novel coronavirus.

The subindexes in the report — which are not used to calculate the headline index — were universally to the downside.

The deepest negative turns were in production which dropped 51.7 points to -35.3 in March and new orders which fell 49.7 points to -41.3. Shipments were down 42.3 points to -33.8.  The rapid and precipitous reversal of conditions was clearly due to the situation with the COVID-19 pandemic. With order backlogs nearly nonexistent and the backlog index down to -22.4 and only the smallest of increases in February at 0.5 after seven months of contraction, there’s nothing in the pipeline to ease the situation, however, small.

Since most other manufacturing has halted abruptly in addition to previously disrupted supply chains out of China and elsewhere, delivery times contracted -3.0 in March after 2.6 in February when hopes of an upturn for the factory sector were firming. Inventory control has been aggressive over most of the past year, so the slower decline of the inventory index to -1.0 after -6.5 in February is probably an artifact of less movement of goods on hand which were limited to start with.

The indexes associated with the labor market all clearly took a  hit with the collapse of orders and production. The index for employment fell to -23.0 in March after -0.9 in February and was at a low not seen since -24.6 in July 2009. The workweek was down to -22.4 after 2.1 in the prior month. The index for wages continued to expand, but was down 17.1 points to 5.5 in March, a low not seen since 5.2 in July 2010. These are recession-like readings.

The index for prices paid fell to -5.9 in March after 12.8 in February and the first negative since -0.2 in March 2016.  the prices received index was down to -9.2 after -0.1 in February and was the lowest since -12.9 in February 2016. Costs are not increasing, but pricing power is suffering.

The Dallas-ISM equivalent index plunged to 39.1 in March after 52.1 in February, the lowest since May 2009 when it was 37.5. The Dallas equivalent correlation with the ISM Manufacturing Index (0.726) is in line with most of the other District Bank surveys for the factory sector. It strongly suggests that the ISM Manufacturing Index will be decisively below the 50-mark when that number is released at 10:00 ET on Wednesday.


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