Thread: Dallas Fed Confirms Economic Re-Contraction, Respondents Com

Dallas Fed Confirms Economic Re-Contraction, Respondents Complain About "Record Low Margins"

by Tyler Durden
04/25/2011 10:58 -0400
53 comments

And following the continuing plunge in new homes for sale reported earlier, we get the second validation of the theory that the Q2 GDP is about to get the rug pulled from underneath it. The April Dallas manufacturing number came precisely at the borderline we expected http://www.zerohedge.com/article/todays ... ontraction earlier would mean an outright downgrade of Q2 economic data by Goldman, or 10.5%. Of note: The production index, a key measure of state manufacturing conditions, moved down from 24 to 8, suggesting slower growth in output." We thing the proper word is "plunged." This is as expected considering our long held assumption that the Japanese economic collapse is already impacting the US. In addition to production, other indicators that saw a collapse were volume of shipments, down 10.9 and the average employee workweeks, which tumbled by over 13. But at least Bernanke is getting his hyperinflation wet dream on: average wages increased by 4. Probably the most important index: prices paid, barely budged, printing at 56.6 compared to 57.2 last month. We are confident that Hatzius will have some very unpleasant words when commenting on this latest contractionary data point. As for the respondents, they confirmed that the bulk of the broader inflation is about to hit, as manufacturers can no longer internalize plunging margins. To wit: "From a cost standpoint, commodity prices continue to increase, negatively impacting material and delivery costs. As a result, we are in the process of taking a price increase to the market, which should occur in May" and "Our sales are up, but our cost of goods sold and the cost of diesel are keeping our margins at record lows" and, FTW: "Rapidly increasing costs and fuel costs have shocked the consumer away from any nonmandatory spending." Pretty much says it all.

From the Dallas Fed: http://www.dallasfed.org/data/outlook/2 ... os1104.cfm



Sufrvey respondents:

Plastics and Rubber Products Manufacturing
We are very encouraged by the breadth of activity with our cross section of customers in the Dallas–Fort Worth area. It is not just a few companies with increased requirements for plastic parts, but pretty much all of our diverse customer base.

Nonmetallic Mineral Product Manufacturing
We have seen a modest increase in demand with existing customers. We have also added some new customers as a result of competitor failures. From a cost standpoint, commodity prices continue to increase, negatively impacting material and delivery costs. As a result, we are in the process of taking a price increase to the market, which should occur in May. Our future expectations remain guardedly optimistic.

Fabricated Metal Product Manufacturing
Lead times for machine tools made in Japan and Korea have increased. We understand the principal issue is the availability of castings for the machine tool bodies. We assume our Korean castings supplier sources from Japan.

The recent Japan supply chain disruption has increased concern for diversification in the supply chain to minimize risk. Higher transportation costs along with the need to reduce cycle time favor manufacturing being close to the distribution channel. This increases opportunity for North America manufacturers. Increased manufacturing increases job creation.

The rate of improvement and the actual improvement in volume of products shipped is only forecasted to achieve production levels that are 50 percent of 2007 levels. We have 25 percent fewer manufacturing plants and 40 percent fewer people than in 2007. As a result of previous investments in efficiency improvements (technical systems and automation), we can produce the same amount of products as we did in 2007 with vastly less cost.

We have seen a slowdown in awards of outstanding quotations from the first quarter. Our backlog has been reduced to less than one month. Renewal of bank credit facility remains very uncertain.

Machinery Manufacturing
The economy is still moving, but it remains shaky and unstable.

We are cautiously optimistic. Activity levels are ticking up a little. We worry about the impact inflation (energy and food) may have on the recovery and consumer spending.

We continue to see little change in the foodservice equipment market, new restaurant openings or equipment replacements. The only real change that we see is higher prices from almost all of our suppliers, especially for stainless steel.

Chemical Manufacturing
If energy prices stay the same or moderate a little, we believe we will see some improvement in volumes over the next few months. A rapid increase in prices from current levels will definitely have a dampening effect on the markets. In times of uncertainty, people and companies hold back on expenditures, control inventories, etc.

Furniture and Related Product Manufacturing
Our industry has hit another brick wall. Rapidly increasing costs and fuel costs have shocked the consumer away from any nonmandatory spending. They normally adjust, but it may take several months.

Computer and Electronic Product Manufacturing
Raw materials (e.g., steel, tungsten) prices are rising exponentially, with an anticipated leveling out at new highs around August or September of this year. Our customers are unwilling to accept the increased pricing from U.S. manufactured product and are turning to China, India and Korea for cheaper prices.

Paper Manufacturing
Because of the slower recovery of nondurable goods, business has remained flat. The only positive coming out of this is that the expected price increase this spring on containerboard is now off the table until July or August at the earliest.

Food Manufacturing
Our sales are up, but our cost of goods sold and the cost of diesel are keeping our margins at record lows. A weak dollar does not help us. High commodity prices also hurt us.

http://www.zerohedge.com/article/dallas ... ow-margins

Today's Economic Docket: Dallas Fed And New Home Sales Should Confirm Contractionary Relapse

Submitted by Tyler Durden
04/25/2011 07:19 -0400
9 comments

New home sales expected to rebound from record lows. Dallas Fed at 10:30 should confirm the Q2 economic contraction (expect Goldman to downgrade Q2 GDP if Dallas Fed comes under 10). After a one day absence, POMO is back, though today all Primary Dealer proceeds will likely go to fund margin calls.

10:00: New home sales (March): Likely higher, but level still low. New home sales fell by 17% to an all-time low in February. While activity in the new home market looks poor in general, a few special factors may have depressed sales volumes during that month. Specifically, weak sales in the Northeast and Midwest may have resulted from inclement winter weather, and the drop in the West could have been payback for an earlier tax credit-induced jump (in California). We therefore expect that sales partially recovered in March. However, our forecast of a 10.0% increase would still leave the level of sales very low at an annualized rate of 275,000.

Median forecast (of 64): +12.0%; Last -16.9%.

10:30: Dallas Fed manufacturing index (April): Still strong. Unlike the Philadelphia Fed index, the manufacturing indicator from the Dallas Fed was not particularly elevated last month. A steep decline therefore looks unlikely for this measure.

Median forecast (of 5): +13.4; Last +11.5.

11:00: $6-8 billion POMO; After a one day absence on Friday, Brian Sack is back in the market, gobbling up 10/31/2016-03/31/2018. Proceeds today will liekly be used not to buy Netflix but to fund silver (and gold) margin calls.

From Goldman and Zero Hedge

http://www.zerohedge.com/article/todays ... ontraction