Business activity in the southern region of the country expanded at a slower pace this month, according to new data from the Federal Reserve Bank of Dallas. Specifically, the 11th Fed district’s manufacturing index slid from 30.9 to 28.1 in September, the third monthly decline in a row, the weakest reading since May, and worse than expected. Under the hood, measures of production, capacity utilization, new orders, shipments, employment, and capital expenditures all deteriorated in September, and confidence about the future (six months ahead) also softened. One thing that did increase in September was the Dallas Fed’s “outlook uncertainty” index, a relatively new measure that climbed to a record high this month due in part to recent trade disputes. Moreover, 47 percent of surveyed manufacturers in September said that the net impact on their firm from the tariffs announced and/or implemented by the U.S. and other countries has been negative.
Thirty-nine percent of respondents expect that the longer-term impact will also be negative, while 35 percent simply do not know what the long-term effect will be. Even managers in the retail and services sectors expressed frustration with recent trade policy, and the primary complaint across all business arenas is that tariffs are causing input costs to rise. One surveyed manager added that “Prices for steel have increased by 30 percent due to import tariffs. This has cut operating margins for the past four months and will continue to have an effect until these fixed-price bids are completed. New contracts will reflect higher raw material costs and higher prices to our customers.” Gauges of manufacturing in other regions of the country have sent more mixed signals in September. For example, a report from the New York Fed showed that activity expanded at a slower rate this month, while data from the Philly Fed signaled a marked acceleration. However, even the weakest activity measures are still well above pre-election levels.
Sources: Econoday, FRBD, FRBNY, FRBP
Post author: Charles Couch