Late last month, when the Dallas Fed beat expectations for June, market participants immediately noted that the survey was stale given recent developments around the virus outbreak in the state.
“The problem is that Texas (along with Florida) is now the US epicenter for COVID-19, which means next month’s survey should be particularly interesting”, I wrote at the time.
The June survey found the Dallas Fed asking Texas business executives a series of supplemental questions about the impact of COVID-19. Asked when they expected revenues to return to normal, around a third answered between one and six months (the breakdown was actually 11.6% for “1-3 months” and 21.1% for “4-6 months”).
That was the setup for today’s release of the July Dallas Fed gauge.
At -3.0, it was a slight beat versus consensus, which was looking for -4.8. The future gauge (colloquially: “hope”) fell nine points, but the accompanying color notes that expectations regarding future business activity “remained universally positive”.
The employment readings actually seem decent. “Labor market measures indicated modest growth in employment and workweek length”, the survey says. The employment index rose from -1.5 to 3.1. That’s the first positive reading since January.
Overall, the Dallas Fed says “perceptions of broader business conditions were mixed in July”, which is understandable given the worsening outbreak and uncertainty about the future of the re-opening push.
One obvious caveat is that the reimposition of lockdowns and containment protocols likely means more for the services sector than factory activity, something underscored by anecdotal accounts from the state.
In the special questions, executives listed managing employee COVID-19 screening and quarantine/sick leave rules and maintaining health protocols at facilities as the most vexing logistical challenges in the current operating environment.
Asked “Has your firm taken any of the following steps over the past month in response to the recent rise in COVID-19 infections in Texas?”, the responses were as follows (respondents could select all that applied).
When queried on the “primary factors” restraining revenue, the overwhelming “favorite” response was “weak demand”.