Manufacturing activity in the southern region of the country expanded at a slower pace in July, according to new data from the Federal Reserve Bank of Dallas (FRBD). Specifically, the 11th Fed district’s general business activity index slid from 36.5 to 32.3 this month, in line with estimates and confirming the modest softening in manager sentiment recorded by other regional Fed reports.
Under the hood, new orders fell sharply in July but measures of production, capacity utilization, shipments, employment, hours worked, wages/benefits, and capital expenditures all improved. Forward-looking (6-months ahead) activity gauges were somewhat less encouraging in July, which the comments from surveyed managers suggest was likely due to concerns about inflation, labor quality, and the continued uncertainty surrounding U.S. trade policy. Highlights below:
- Chinese tariffs will have a large negative impact on business.
- Trade policy is raising concerns about delivery times and trade flows changing to adjust for tariff risks.
- What will President Trump do next, and will it hurt or help?
- Steel tariffs create uncertainty. How long will they last? Will they be replaced with quotas?
- We are receiving more notifications of price increase from suppliers due to escalation in metal costs and tariff implementation.
- Tariffs on steel and aluminum will drive significant increases in material costs.
- The uncertainty in pricing of raw materials, primarily steel, has increased and has affected the actual start of major customer capital projects.
- Prices of materials and wages continue to rise, while the ability to hire new employees has become more difficult.
- Cost and availability of labor continues to be a struggle.
- Tariffs or threats thereof are pushing prices on commodities which are used in manufacturing and are not seen as much in a service economy. However, like a service economy, pressure on wages continues to increase. Employee turnover, which is rarely talked about on financial news channels, is a more significant problem.
- Lack of available labor is our No. 1 impediment to growth.
Sources: Econoday, FRBD
Post author: Charles Couch