German Markit PMI Hits A 5 Month High

Final July Regional Fed Manufacturing Report

The Dallas Fed manufacturing report is the last of the regional Fed readings for July. This means we can make educated guesses on how the ISM manufacturing PMI will turn out. I expect it to be weaker than June, but still show strong growth. The Dallas general activity index came in at 32.3 which beat the consensus for 32.0, but was below last month’s report of 36.5. The production index was up from 23.3 last month to 29.4. As you can see from the chart below, the 6 month expectation for general business activity increased from 35.9 to 36.2. The chart shows both indexes are elevated, but below their recent peaks.

Energy prices drove this expansion as this region has a big fracking sector. Even though other regional Fed indexes showed there have been delays in deliveries, this report showed the shipments index was up 5.3 points to 30.8. There were a few underlying weak metrics which are disappointing, considering the overall index was strong. New orders were down 6.3 points to 23.3 and the company outlook index was down 12.8 points to 20.4. Only 27.2% of firms said business is expected to improve. There was a big increase in uncertainty from 7.9 to 17. 24.5% of firms had an increase in the level of uncertainty in their outlook. I think this is related to the tariffs.

In the comments section of this report, primary metals firms asked “what President Trump will do next? Will it help them or hurt them?” A fabricated metal product manufacturing firm stated “We were able to increase our pricing due to tariffs on steel effective on June 1 but have purchased steel at the old pricing on most gauges through Sept. 30. It seems like most volume steel users would have done the same. We are having a great year. Sales are up, and margins are up. We hope we have raised our prices enough to cover the higher-cost steel arriving in the fourth quarter.”

Finally, let’s review the prices in this report to see where inflation is headed. The prices paid for raw materials index fell from 53.6 to 48.6 and the prices paid for finished goods index fell from 26.2 to 229. As you can tell, inflation is heightened, but there was a slight reprieve. That makes sense because the growth rate of new orders fell, the shipments increased, the finished goods inventories index fell, and the delivery times index fell.

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