Dallas Fed Tumbles Below Lowest Estimate As Commodity Crash Comes Knocking

Who could have possibly anticipated that the one state that contributed the most high-paying jobs during the "recovery" on the back of the shale miracle, is facing recession (as JPM predicted)? Certainly not economists, who have correctly predicted exactly zero of the last 20 economic recessions, and whose lowest estimate for today's Dallas Fed manufacturing outlook survey was 5.0 (with 12.5 on the high side, and a 9.0 consensus mean). Moments ago we got the official number and it was a doozy, plunging from 10.5 to just 4.1, the lowest print since the Polar Vortex swept away economic activity across the US and when the Dallas Fed printed a tiny 0.3. The drop of 6.4 from the November print was also the largest slide in economic activity since October 2013.

Surely this latest proof that the US is not decoupling from the rest of the world, will be sufficient to push the S&P even higher on hopes that the US is, all evidence to the contrary , decoupling.


The full breakdown by component - virtually every component posted a decline since November, except for wages which rose a meager 1.2. However, the more than proportional offset: hours worked tumbled from 5.7 to 0.0, resulting in lower overall compensation.

Some of the other highlights (from the report):

The general business activity index fell from 10.5 to 4.1. The company outlook index was almost unchanged at 8.4, with 21 percent of respondents noting an improved outlook.


Labor market indicators reflected unchanged workweeks but continued employment increases. The December employment index held steady at a solid reading of 9.2, with 17 percent of firms reporting net hiring compared with 7 percent reporting net layoffs. The hours worked index dropped from 5.7 to 0, indicating no change in hours worked in December.


Upward pressures on prices eased, while wage pressure increased slightly. The raw materials prices index fell from 15.3 to 10.2, its lowest reading in eight months. The finished goods prices index declined as well to a 13-month low of 4.2. Looking ahead, 26 percent of respondents anticipate increases in raw materials prices over the next six months, while 24 percent expect higher finished goods prices. The wages and benefits index ticked up from 23.9 to 25.1. This index has been consistently elevated this year, suggesting continued upward pressure on compensation costs.


Expectations regarding future business conditions remained optimistic in December. The index of future general business activity fell from 18.3 to 13.9, while the index of future company outlook edged up to 24.1. Indexes for future manufacturing activity moved down in December but remained in solidly positive territory.

But the most notable component, Capital Expenditures, which is now a harbinger of what is about to happen to capital spending across the energy sector in 2015, unambiguously crashed from 13.3 to 5.6. And just like that trillions in job-creating capital spending is mothballed.

Which, of course, is good news for management: just think of all those pent up buybacks that will now be enabled, courtesy of the indefinite freeze in capex. Surely that alone will send stocks to newer all time highs as nothing but financial engineering is left.