As expected the July Dallas manufacturing index remained in contraction territory at 6.3, about in line with the estimate of -6 and compares with -12 in June. It does mark the 3rd straight month below zero. The internals were all over the place however as new orders rose but backlogs fell. Employment and the workweek improved but delivery times fell. Capital spending plans rose but just got back most of what it lost in June. Prices paid rose slightly while those received went negative. The overall 6 month business outlook did rose back above zero at 6 after falling to -2.7 in June but it was 9.1 in May and 18.4 in April.
Bottom line, ahead of Thursday’s national ISM manufacturing index, regionally we’ve seen modest improvement in NY, a big jump in Philly and negative prints from Richmond, KC and Dallas. Also, the Markit PMI was spot on 50, the dividing line between expansion and contraction. We know all about the weakness in manufacturing and trade and thus the real question from here is to what extent it infects the services side of the US economy. That has begun as seen in the July read from Markit and the June print from ISM where it matched the lowest level since October 2016. The July services index is released a week from today.
Here are some comments of note from businesses in different industries:
Fabricated Metal Product Manufacturing:
“Our backlog and response to open requests-for-quotation have decreased substantially.”
“Lowering the interest rate really does not make sense for my business or other small businesses. Wage inflation at small businesses is still moving higher, while skills in the available labor force are decreasing dramatically. Inflation from the trade talk is constantly pushing material increases across the spectrum. Capital expenditures show signs of increasing equipment costs (2019 vs. 2018). The housing sector is robust in multifamily, where new construction and replacement markets appear to be stagnant. But in my honest opinion, anything that creates a tighter labor market is going to increase troubles for small businesses.”
Computer and Electronic Product Manufacturing:
“We expect to see a sub-seasonal third quarter as we work through the third consecutive quarter of a weak industry cycle. We would expect revenues to inflect starting in the fourth quarter or the first quarter of next year. Uncertainty around trade tensions and slowing automotive demand make recovery less predictable.”
“We had a very good growth year in 2018, so this year doesn’t look as good relative to 2018. We have had a good year so far, but we foresee slowing down in the last six months of the year compared to 2018. The international pressures we are facing at the moment have an impact, but I am thinking the election year will be more uncertain and risky. Some politicians would benefit greatly if the economy becomes distressed, so I worry it will be self-fulfilling.”
Textile Product Mills:
“Business remains steady and healthy—no great increases, decreases or changes.”
Paper Manufacturing:
“The slowdown has now gone on long enough to affect our outlook, and we are starting to make plans for reductions. We are holding out hope for the next two to four weeks to avoid reductions (which would be small at first).”
Printing and Related Support Activities:
“It is very tough and stupid slow. We had the worst incoming-order month in June that we have had in over 15 years, and June billing was very anemic. We don’t know what is going on, but it has been very slow. We are probably looking to rightsize in both the plant floor and office to better fit activity levels. Then our city council passed a paid-sick-leave ordinance that hopefully will be ruled unconstitutional. It would be a cost we couldn’t absorb and would require additional layoffs and cuts.”
“The sustainability of the same or increased level of business activity is in jeopardy due to lack of available semiskilled labor.”