The Dallas Fed diffusion index is out, coming at a disappointing 11.5 on expectations of 18.4, with the market completely ignoring it. After all good diffusion index data is to be bought even if it confirms surging inflation, and bad diffusion index data is to be avoided. And while the component data is pretty bad (projected wages and benefits 6 months ahead plunge by 12 points as do Capital Expenditures, as firms refuse to spend any more organic cash on growth, offset by expectations of lower input costs, which remains TBD), the true nuts and bolts of the index can be gleaned from the respondent surve, presented below, although the most relevant one is here: "Prices are high,
which makes for lower volume. The supply of cattle is limited. The cost
of grain for livestock is unusually high because of high corn prices,
partly attributable to ethanol subsidies. All of our raw material costs are at record highs. The cost of diesel also hurts us. A weak dollar is not good for us." No surprise there.
Comments from Survey Respondents
These comments were selected from respondents' completed surveys and have been edited for publication.
Plastics and Rubber Products Manufacturing
We've seen a drop off of new orders and particularly repeat orders, perhaps related to the expiration of stimulus funds in the general economy.
Nonmetallic Mineral Product Manufacturing
Two factors have resulted in an increase in demand: consolidation of a sister location into our location and the closure of the sister location, and exit from the industry by a competitor in Florida. These factors have significantly improved order flow through our location. We have also seen a minor increase in order flow from existing customers, indicating the beginning of a recovery in the housing sector. Commodity-based raw material prices have begun to increase, partially due to higher energy prices and a weak U.S. currency. As a result, we will seek a small price increase for our products within the next two months. The impact of the recent situation in Japan on the world economy has yet to be determined, so we remain cautiously optimistic at this time.
Fabricated Metal Product Manufacturing
A large new project with a local maker of high-end furniture may double our volume of shipments.
Our oil field service, coal mining and minerals mining customers continue to accelerate their demand. Other markets remain soft. We are adding to our labor resources. The only area of difficulty we have is hiring and retaining qualified machinists.
We continue to see a slow improvement in demand in our markets, but our industrial customers remain very cautious and cost-conscientious. My impression of the general economy is less optimistic than a month ago. Costs that matter to consumers, like food and fuel, are going up very significantly. The uncertainties in the Middle East and Japan are affecting everyone's confidence.
We are seeing a small slowdown in new orders thus far this month, but we expect it to pick back up to February-type numbers.
Demand seems to be gaining traction slowly, but we are concerned about the effect of higher oil prices, particularly on consumer demand.
Furniture and Related Product Manufacturing
The outlook seems to be on the edge again, and we are very unclear as to the direction. The last three weeks, which are normally dramatically upward, are two weeks up and one week down. How much world events are playing on this is unknown, but gas prices are dampening business. All of our dealers are certain on that one point.
Computer and Electronic Product Manufacturing
Commercial aircraft business is anticipated to increase. Military and defense business is fairly flat.
About 10 percent of our revenue is sourced from manufacturing sites in Japan that have been affected by the recent earthquake. About 60 percent of our products are sourced from other facilities, and it is possible to move all production to other sites over time. Due to our manufacturing processes, most of our WIP (work in process) to meet the current quarter demand is in final stages in other parts of the world. Hence, supply impact will be greatest in second quarter 2011. Near-term, about 10 percent of our revenue ships into Japan, and customer sites vary from being fully back on line to not knowing when production would resume. The impact on demand is not known at this point.
Prices are high, which makes for lower volume. The supply of cattle is limited. The cost of grain for livestock is unusually high because of high corn prices, partly attributable to ethanol subsidies.
All of our raw material costs are at record highs. The cost of diesel also hurts us. A weak dollar is not good for us.