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First Cut: Dallas Fed manufacturing index off record lows in May

The general business activity index in the Dallas Fed’s Texas Manufacturing Index managed to lift off the record lows of March and April and rise to -49.2 in May. The same was true for the index for six months from now which gained to -19.0 in May after record lows in the prior two months. The uncertainty index also improved from the lofty peak of 62.6 of March that fell to 54.4 in April and was down to 28.3 in May. Manufacturers in the Dallas Fed District remained deeply pessimistic about conditions and worried about the outlook but at least were less so than at the start of the COVID-19 pandemic when so many unknowns plagued decision making.

The detail indexes improved nearly across the board in May even while consistent with recession. New orders remain absent, order backlogs have disappeared, production is idle, and there is little to ship out. Delivery times continued to shrink. Inventories remained in contraction, although at a similar pace to the prior month. Employment was still slow in May, although less so than in the prior two months. Wages remained on the decline, if just below neutral for May. The workweek narrowed for a third month in a row.

The index for prices paid was up in May to 2.5 after -19.6 in April as energy prices rose slightly. However, the index for prices received was still a negative at -19.4 in May after -24.6 in April as businesses have little pricing power during the downturn.

The Dallas-ISM equivalent index was up to 41.1 in May after a low of 33.3 in April. The Dallas index – calculated from the five components most like the ISM Manufacturing Index – has a decent correlation (0.726) with the ISM measure for the factory sector. Taken in context with the mild increases for New York and Philadelphia, it hints that the ISM Manufacturing Index may be up from the 41.5 in April when the May data is released at 10:00 ET on Monday, June 1.

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