Manufacturing activity in Texas fell for the second month in a row in June as prices and wages continued to rise sharply, raising the possibility of the economy heading for stagflation.
The Federal Reserve Bank of Dallas said its overall business activity index fell to minus 17.7 from minus 7.3 last month, the lowest level since May 2020. Readings below zero indicate decreased activity.
The production index, a key measure of production conditions in the state, fell to 2.3 from 18.8 in May, remaining almost in positive territory, indicating stable production.
The index, which measures how companies feel about their business, fell to minus 20.2 from minus 10 last month.
This collapse in job conditions and factory production did little to alleviate inflationary pressures as prices and wages continued to rise. The commodity price index fell to 57.5, more than double the average of 28.0. The finished goods price index also fell from 41.8 to 33.8, a level the Dallas Fed calls “very high”. The Wages and Benefits Index has been unchanged since May at 49.9, above an average of 20.4.
The decrease in demand in June compared to the previous month showed that rising prices and interest rates could affect customer decisions. The new orders index turned negative and fell to minus 7.3 from 3.2 in May, the first negative reading in two years. The order growth rate index fell from minus 5.3 to minus 16.2, deepening further into negative territory. The backlog index dropped from 4.1 to minus 8.8, reflecting lower backlogs and a further slowdown in production.
The shipping index fell from 13.1 to 1.2, which indicates that the growth of shipments has almost stopped.
The employment index fell from 20.9 to 15.2, indicating that wage wages continue to rise, but at a slower pace.
The lead time index, an important supply chain barometer, rose from 4.3 to 19.9. This means increased delivery times.
The short-term outlook for Texas producers is much darker. The overall index of future business activity fell to minus 26.0 from minus 6.5 in the previous month. The index, which measures a company’s probability of owning a job, also continued to fall into negative territory, falling from minus 4.5 to minus 23.5.
Source: Breitbart
