Another diffusion index miss, another snooze in stocks, another surge in inventories, another plunge in new orders, and another harbinger of margin collapse: that's how one can describe today's only relevant economic datapoint. The Dallas Fed's December Texas Manufacturing Index came at 12.8, a big miss from expectations of 17, and a drop from the November print of 13.1. And as always, the really nasty news was behind the headlines: finished goods inventories surged by 11.1 to -1.1 (and a whopping 19.5% in the six month forward index), while materials inventories rose by 3.9%. On the margin collapse side prices paid for raw materials jumped by 9%, wages and benefits increased by 4.4%, while new order volume and growth rate bit plunged by 7.5% and 6.8% respectively. We expect the futures to go green imminently on this piece of economic data which no computer gives a rat's ass about.
From the report:
Texas factory activity increased in December, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, was positive for the fourth consecutive month.
Other indicators of current activity also remained positive, signaling continued growth in manufacturing. The shipments index held steady at a reading of 8, and the capacity utilization index rose from 10 to 15, with 29 percent of manufacturers reporting an increase. The new orders index declined in December but stayed in positive territory, with more than three-fourths of firms noting increased or unchanged order volumes.
Measures of general business conditions remained positive in December. The general business activity index came in at 13, with nearly a quarter of respondents noting improved activity. The company outlook index edged down to 15, although the share of manufacturers who said their outlook improved rose to its highest level since May.
Labor market indicators improved notably this month. The employment index rose from 6 in November to 15 in December, reaching its highest level since early 2007. Twenty-four percent of firms reported hiring new workers, compared with 9 percent reporting layoffs. Hours worked increased again this month, and the wages and benefits index rose from 5 to 10.
Prices climbed again in December. Input costs remained on an upward trend, with the raw materials price index rising from 35 to 44. Forty-six percent of manufacturers saw an increase in prices paid for raw materials, compared with only 2 percent who saw a decrease. Finished goods prices rose for the second month in a row, although the great majority of respondents continued to note no change. More than half of respondents anticipate further increases in raw materials prices over the next six months, while 37 percent expect higher finished goods prices.
Manufacturers’ six-month outlook continued to improve. The future indexes for production and shipments edged up further; more than half of respondents expect increases in these measures in coming months. The future new orders index rose to its highest level in four years, with all firms anticipating either increased or stable order volumes. The future general business activity index advanced from 26 to 37, and the future company outlook index rose to 38, with 94 percent of firms anticipating similar or improved conditions six months from now.
The Dallas Fed conducts the Texas Manufacturing Outlook Survey monthly to obtain a timely assessment of the state’s factory activity. Data were collected Dec. 14–21, and 96 Texas manufacturers responded to the survey. Firms are asked whether output, employment, orders, prices and other indicators increased, decreased or remained unchanged over the previous month.
Survey responses are used to calculate an index for each indicator. Each index is calculated by subtracting the percentage of respondents reporting a decrease from the percentage reporting an increase. When the share of firms reporting an increase exceeds the share reporting a decrease, the index will be greater than zero, suggesting the indicator has increased over the prior month. If the share of firms reporting a decrease exceeds the share reporting an increase, the index will be below zero, suggesting the indicator has decreased over the prior month. An index will be zero when the number of firms reporting an increase is equal to the number of firms reporting a decrease.