Dallas Fed Confirms Economic Re-Contraction, Respondents Complain About "Record Low Margins"

Tyler Durden's picture

And following the continuing plunge in new homes for sale reported earlier, we get the second validation of the theory that the Q2 GDP is about to get the rug pulled from underneath it. The April Dallas manufacturing number came precisely at the borderline we expected earlier would mean an outright downgrade of Q2 economic data by Goldman, or 10.5%. Of note: The production index, a key measure of state manufacturing conditions, moved down from 24 to 8, suggesting slower growth in output." We thing the proper word is "plunged." This is as expected considering our long held assumption that the Japanese economic collapse is already impacting the US. In addition to production, other indicators that saw a collapse were volume of shipments, down 10.9 and the average employee workweeks, which tumbled by over 13. But at least Bernanke is getting his hyperinflation wet dream on: average wages increased by 4. Probably the most important index: prices paid, barely budged, printing at 56.6 compared to 57.2 last month. We are confident that Hatzius will have some very unpleasant words when commenting on this latest contractionary data point. As for the respondents, they confirmed that the bulk of the broader inflation is about to hit, as manufacturers can no longer internalize plunging margins. To wit: "From a cost
standpoint, commodity prices continue to increase, negatively impacting
material and delivery costs
. As a result, we are in the process of
taking a price increase to the market, which should occur in May" and "
Our sales are up,
but our cost of goods sold and the cost of diesel are keeping our
margins at record lows" and, FTW: "
Rapidly increasing costs and fuel costs have
shocked the consumer away from any nonmandatory spending."
Pretty much says it all.

From the Dallas Fed:

Sufrvey respondents:

Plastics and Rubber Products Manufacturing
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.

Nonmetallic Mineral Product Manufacturing
We have seen a
modest increase in demand with existing customers. We have also added
some new customers as a result of competitor failures. From a cost
standpoint, commodity prices continue to increase, negatively impacting
material and delivery costs
. As a result, we are in the process of
taking a price increase to the market, which should occur in May. Our
future expectations remain guardedly optimistic.

Fabricated Metal Product Manufacturing
Lead times for
machine tools made in Japan and Korea have increased
. We understand the
principal issue is the availability of castings for the machine tool
bodies. We assume our Korean castings supplier sources from Japan.

The recent Japan supply
chain disruption has increased concern for diversification in the
supply chain to minimize risk
. Higher transportation costs along with
the need to reduce cycle time favor manufacturing being close to the
distribution channel. This increases opportunity for North America
manufacturers. Increased manufacturing increases job creation.

The rate of improvement
and the actual improvement in volume of products shipped is only
forecasted to achieve production levels that are 50 percent of 2007
levels. We have 25 percent fewer manufacturing plants and 40 percent
fewer people than in 2007. As a result of previous investments in
efficiency improvements (technical systems and automation), we can
produce the same amount of products as we did in 2007 with vastly less
cost.

We have seen a slowdown
in awards of outstanding quotations from the first quarter. Our
backlog has been reduced to less than one month. Renewal of bank credit
facility remains very uncertain.

Machinery Manufacturing
The economy is still moving, but it remains shaky and unstable.

We are cautiously
optimistic. Activity levels are ticking up a little. We worry about the
impact inflation (energy and food) may have on the recovery and
consumer spending.

We continue to see
little change in the foodservice equipment market, new restaurant
openings or equipment replacements. The only real change that we see is
higher prices from almost all of our suppliers, especially for
stainless steel.

Chemical Manufacturing
If energy prices
stay the same or moderate a little, we believe we will see some
improvement in volumes over the next few months. A rapid increase in
prices from current levels will definitely have a dampening effect on
the markets
. In times of uncertainty, people and companies hold back on
expenditures, control inventories, etc.

Furniture and Related Product Manufacturing
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.

Computer and Electronic Product Manufacturing
Raw materials
(e.g., steel, tungsten) prices are rising exponentially, with an
anticipated leveling out at new highs around August or September of
this year. Our customers are unwilling to accept the increased pricing
from U.S. manufactured product and are turning to China, India and
Korea for cheaper prices.

Paper Manufacturing
Because of the
slower recovery of nondurable goods, business has remained flat. The
only positive coming out of this is that the expected price increase
this spring on containerboard is now off the table until July or August
at the earliest.

Food Manufacturing
Our sales are up,
but our cost of goods sold and the cost of diesel are keeping our
margins at record lows. A weak dollar does not help us. High commodity
prices also hurt us.