‘We Are Just Trying to Hold on’


By Paul Vigna

Just in case you’re still hung over from the weekend, the Dallas Fed has a bucket of cold water for you. The regional bank came out with its June manufacturing survey this morning, and as bad as the numbers are, and they are bad, the comments are even worse.

The general business activity index fell to negative 4 from 2.9, the company outlook index fell to negative 2.8 from 19.6. The production index fell to negative 1.9 from 20.8 in May; capacity utilization fell to positive 2.7 from 18.7 in May. New orders fell to negative 8.2 from 15.8 in May. Go all the way down the line, the numbers are all down from a month ago. But even more so than the numbers, the comments from businesses surveyed are the real tell here, and it seems to me the Fed wouldn’t have any reason to cherry pick especially bad comments, so this is probably a pretty good take on where things stand.

You really need to read the whole thing to get the total picture:

Comments from Survey Respondents
These comments were selected from respondents’ completed surveys and have been edited for publication.

Wood Product Manufacturing
After skyrocketing in February through April, the North American lumber market has collapsed, indicative of the slowdown at U.S. job sites. Small and medium businesses here in “the trenches” are hurting every bit as much as last year. Much of the downturn is a result of the stimulus ending and the typical midyear slowdown that occurs in the building and construction industry.

Paper Manufacturing
A third price increase on linerboard is a possibility within the next couple of months. If this occurs, it will cause a major uproar with our customers. They will all be going out for bids, causing margins to erode.

Chemical Manufacturing
We are not optimistic about the next couple years.  There are too many negative factors in the world of finance right now.

Plastics and Rubber Products Manufacturing
As a business, we are just trying to hold on until the upturn comes.

The availability of skilled technicians and toolmakers is scarce, particularly in the 20- to 40-year-old age group.

Nonmetallic Mineral Product Manufacturing
Housing activity has had some pullback with the expiration of the home-buyer tax credit. The recovery will be lengthy and slow in coming, and it will be subject to improved employment levels and an upturn in the credit markets.

Fabricated Metal Product Manufacturing
After two consecutive months of increased activity, we have seen a dramatic drop in new business, with no backlog for July and beyond. We are having considerable trouble with our bank; although we are not in default and are making all payments, the bank has not executed a loan facility renewal after almost 90 days past our renewal date. There is a high degree of uncertainty in the marketplace, with owners and their designated contractors and design engineers seeing a dramatic reluctance to initiate planned projects, both maintenance and capital expenditure.

We have yet to see any evidence in Texas or across the country of an economic recovery.

Overall business has improved. There seems to be more onshoring of manufacturing due to risk control, inventory management and short lead times. Increased business expenses created by state tax increases are causing pressure on cost competitiveness. It is still very challenging to obtain financing for capital expenditure and growth.

Economic activity remains tenuous for building materials manufacturers.  Financing and demand for capital goods will determine the strength of the recovery as it relates to construction.

Machinery Manufacturing
We are quite concerned about the trends in general business activity. It feels like we are slowing down, not speeding up. I don’t see much that is encouraging at this point.

Our outlook for the next six months has improved due to our company broadening its product offerings, not necessarily due to improved economic conditions.

Demand for capital goods in the food service industry remains at a very low level.

Computer and Electronic Product Manufacturing
Right now business looks steady, but we’re stepping lightly.

Furniture and Related Product Manufacturing
Business has worsened this month. Retail activity has gone down, damaging the hope for improvement among retailers.

Beverage and Tobacco Product Manufacturing
2009 was great, but the wheels came off a little bit in the first quarter of 2010. The second quarter has been better, but not great.