11/28/23 09:17 AM EST

Persistent Pessimism in Business Outlook

Below is a chart and brief excerpt from today’s Market Situation Report written by Tier 1 Alpha. If you’re interested in learning more about the Hedgeye-Tier 1 Alpha partnership, there’s more information here.

The Texas Manufacturing Survey from the Dallas Fed for November revealed a decline in the general business activity index to -19.9, a slight decrease from the previous month and a continuation of a 19-month contraction trend. Texas factory activity experienced a downturn in November following two months of growth, with significant indicators such as the production index dropping to -7.2, and other key metrics like new orders and capacity utilization also showing negative figures.

The survey highlighted a persistent pessimism in business outlook, with key indexes reflecting sustained negativity for over a year and a half. Employment growth slowed marginally, with the employment index dropping below the average and the hours worked index dipping into the negatives. Wage growth aligned with the long-term average, material costs grew modestly, and selling prices decreased, hitting the lowest point since mid-2020. The rolling three-month average for general business activity stands at -19.1, reinforcing the ongoing challenges in the Texas manufacturing sector.

This report is a microcosm of 2023. Nasdaq is nearing all-time highs while Texas manufacturing contracts for its 19th month and manufacturers lose pricing power. We will include a few cutouts of comments from various survey respondents by sector. The concern is this contraction persists for another 19 months.