Dallas Fed Manufacturing Survey Unexpectedly Slows

Texas manufacturing activity unexpectedly slowed in May, with the general business activity index falling into contraction at minus 5.3, down 7.3 points from the April reading and in sharp contrast to the consensus forecast calling for a modest increase.

Despite the headline decline, factory activity continued to expand in May, albeit at a slower pace, with the production index falling 6.1 points but remaining in expansionary territory at 6.3. The survey's demand indicators likewise slipped but remained positive: new orders fell 7.4 points to 2.4, the growth rate of orders declined 4.1 points to 1.1 and capacity utilization fell to 7.7 from April's seven-month high of 15.6. Contrasting with the weakness of the overall report were shipments, which rose 1.3 points to 7.6, and employment, which rebounded 7.0 points to 11.6.

Inflation pressures were even more muted than in April, with prices paid for raw materials edging to 7.4 points from April's 7.9, the lowest reading in three years, while the prices received index fell 5.3 points to 0.7. Wages remained strong, however, at 27.6.

Expectations remained mostly positive but much less optimistic, with the current company outlook worsening by 8 points to minus 1.7 and the company outlook six months ahead down 9.4 points to 11.5. The outlook for general business conditions six months ahead fell 9.3 points to 9.1.