Dallas Fed's Activity Index Rises Nearly 10 Points

A sharp rise in the general activity index as well as for inflation pressures contrast with slowing in production. The Dallas Fed's general activity index rose nearly 10 points to a 36.5 level for June that tops Econoday's consensus range. But production declined nearly 12 points to 23.3 in what is sharp deceleration but to a still strong rate of growth. Like production, the capacity utilization and shipments indexes both posted double-digit declines though employment growth is holding near May's 6-year high.

A major indication that production may begin to reaccelerate is another increase in new orders which are at 29.6 and the highest level of the year. And strength in orders isn't hurting the company outlook which rose to 33.2 for the highest level in 12 years.

Price data in this report do not point to cooling but to overheating. The raw materials prices index rose 10 points to 53.6, its highest reading since 2011. The finished goods prices index moved up to a 10-year high of 26.2. Compensation costs also accelerated with the wages and benefits index rising seven points to 31.4.

Though production is slowing this month and is a reminder of last week's downward pivots in the Philly Fed and manufacturing PMI, there are still plenty of indications in this sample consistent with very strong, and perhaps unsustainable, rates of growth. Much of this strength is coming from high oil prices which if they continue to climb could make for even greater strength in future Dallas reports.