Market Talk

Anyone betting that manufacturing will continue to lead the US economic recovery might think twice after reading comments from survey respondents in Dallas Fed’s April Texas manufacturing outlook.

Similar to Philly Fed’s gauge last week, Dallas headline number tanked, to 8.1 from 24.1 in March. The Philly survey’s headline number fell to 18.5 from 43.4 in March, but unlike the Dallas survey, Philly doesn’t include respondent comments in its report.

Down in Texas there’s a fair measure of cautious optimism among survey respondents, and plenty of concern about high costs and soft demand. Here’s one from a plastics and rubber products manufacturer that sounds pretty good:

“We are very encouraged by the breadth of activity with our cross section of customers in the Dallas–Fort Worth area. It is not just a few companies with increased requirements for plastic parts, but pretty much all of our diverse customer base.”

Now here’s one from the other end of the spectrum, a furniture/related product manufacturer: “Our industry has hit another brick wall. Rapidly increasing costs and fuel costs have shocked the consumer away from any nonmandatory spending. They normally adjust, but it may take several months.” Continue reading…

Dallas Fed’s stronger Nov Texas manufacturing survey follows solid regional reports from other Fed branches, though the mix of Texas respondents’ comments continue to sound measured, at best.

“We are cautiously optimistic,” says a fabricated metal product manufacturer. “We have seen an increase in business coming from several areas,” a chemical maker says, and customers “are now reordering.” A beverage & tobacco product maker said the local economy “has improved slightly here in East Texas.”

That’s about as good as it gets.

Plastics & rubber: “Overall business is still slow.” Furniture: “More dealers are barely holding on, and we are hearing rumbles of one or two major companies getting ready to file for bankruptcy.” Machinery says orders “continue to be very uneven,” and future growth is expected to come from winning more market share, “but we are in a market that is experiencing very little real growth.” A food manufacturer says high dairy and sugar prices “are really hurting us, and a weaker dollar does not help.”

Just in case you’re still hung over from the weekend, the Dallas Fed has a bucket of cold water for you. The regional bank came out with its June manufacturing survey this morning, and as bad as the numbers are, and they are bad, the comments are even worse.

The general business activity index fell to negative 4 from 2.9, the company outlook index fell to negative 2.8 from 19.6. The production index fell to negative 1.9 from 20.8 in May; capacity utilization fell to positive 2.7 from 18.7 in May. New orders fell to negative 8.2 from 15.8 in May. Go all the way down the line, the numbers are all down from a month ago. But even more so than the numbers, the comments from businesses surveyed are the real tell here, and it seems to me the Fed wouldn’t have any reason to cherry pick especially bad comments, so this is probably a pretty good take on where things stand.

You really need to read the whole thing to get the total picture:

Comments from Survey Respondents
These comments were selected from respondents’ completed surveys and have been edited for publication.

Wood Product Manufacturing
After skyrocketing in February through April, the North American lumber market has collapsed, indicative of the slowdown at U.S. job sites. Small and medium businesses here in “the trenches” are hurting every bit as much as last year. Much of the downturn is a result of the stimulus ending and the typical midyear slowdown that occurs in the building and construction industry.

Paper Manufacturing
A third price increase on linerboard is a possibility within the next couple of months. If this occurs, it will cause a major uproar with our customers. They will all be going out for bids, causing margins to erode.

Chemical Manufacturing
We are not optimistic about the next couple years.  There are too many negative factors in the world of finance right now.

Plastics and Rubber Products Manufacturing
As a business, we are just trying to hold on until the upturn comes.

The availability of skilled technicians and toolmakers is scarce, particularly in the 20- to 40-year-old age group.

Continue reading…