Dallas Fed manufacturing unexpectedly shrinks in May

Manufacturing activity in Dallas shrank in May after improving in the prior two months.

The index of general business activity fell to -20.8. Economists had forecast an improvement to -8 from -13.9 in April, according to Bloomberg.

New orders plunged 20 points after turning positive in the previous month. The gauges of capacity utilization and shipments also fell back below zero.

Most other regional manufacturing indexes, including those from New York, Richmond and Chicago showed that the sector’s rebound is taking longer than anticipated. Like Dallas, there was also renewed slowdown in Chicago after a few months of recovery.

As usual, the report from Dallas includes anecdotes from respondents in the manufacturing sector, and a lot was said about the Department of Labour’s new overtime rule.

It raises the minimum salary for eligibility to $47,476 from $23,660.

Some people were concerned that this would either hike business costs or reduce benefits, neither of which is good for employees.

Another respondent noted a “serious productivity problem” among office workers, and raised concern that the new overtime rule would increase overhead costs.

The person added:

The younger workers are often off task, engaged on social media, on the internet, texting on phones and other unproductive activities. The Department of Labour must realise that if we are supposed to pay them overtime for work they should do during normal work this will make us have to focus on micromanaging employees and reducing compensation to reflect actual productivity of a mandated 40 hour or less workweek.

Another person said it’s too soon to tell whether their clients in the oil sector would increase capital spending now that prices are rising.

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