Dallas Fed Manufacturing Survey Continues To Expand, But At Slower Pace

Texas manufacturing activity continued to expand but at a slower pace in September, with the general business activity index edging down 1.2 points to 1.5 after August's strong rebound from three-year lows. The slight deceleration was roughly in line with expectations and was accompanied by a retreat of 4.0 points to 13.9 in the production index, which had surged in August to the highest reading of the year.

Deceleration was also seen in new orders, which slipped 2.2 points to 7.1 while unfilled orders fell 1.8 points to minus 2.0. Shipments slowed by 2.9 points to 14.7 while capacity utilization declined 3.7 points to 12.0.

Employment, however, surged 13.3 points to 18.8, its highest reading in nearly a year, with hours worked rising 1.7 points to 5.7. Capital expenditures were also a positive in September, rising 3.7 points to 11.1.

Expectations for the next six months worsened, with the company outlook falling 8.0 points to 2.4 while the general business activity outlook fell 8.2 points and into contraction at minus 6.8.

On the inflation front, input costs continued to rise in September and wage growth moderated, while selling prices remained steady. The raw materials prices index rose 11 points to 20.3. The wages and benefits index remained positive but fell 10 points to 17.4. Finished goods prices continued to oscillate around zero for a fifth consecutive month, coming in at 1.0.

Though employment is a strong plus in today's mixed report, the overall moderation in the regional survey is not likely to reduce the Fed's concerns about weakness in the manufacturing sector and its exposure to global trade risks.