June 27, 2011

Texas Manufacturing Activity Rises but at a Slower Pace

Texas factory activity expanded in June, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, remained positive but fell from 12.7 to 5.6, suggesting output growth slowed this month.

Other measures of current manufacturing conditions indicated flat activity, while new orders picked up. The capacity utilization index slipped into negative territory but was near a reading of zero, suggesting little change over the prior month. Similarly, the shipments index fell to zero with about 60 percent of manufacturers noting no change in shipment volumes. The new orders index rose from 1.1 in May to 6.4 in June, its eighth consecutive month in positive territory. Nearly one-quarter of firms said order volumes increased from May levels. The growth rate of orders index turned positive after dipping into negative territory last month.

Perceptions of general business conditions were mixed in June. The general business activity index pushed further negative, falling from –7.4 to –17.5. Twenty-eight percent of respondents said activity weakened this month, the highest share in nine months. However, the company outlook index rose from 3.2 to 7.2, suggesting manufacturers were more optimistic about their firms’ prospects for the near future. More than 85 percent of respondents said their outlooks were unchanged or improved from last month.

Labor market indicators reflected slower growth in labor demand. The employment index came in at 5.3, with 14 percent of manufacturers reporting hiring new workers compared with 9 percent reporting layoffs. The hours worked index fell to 1.5 in June, down from a reading of 13.2 in May.

Price and wage pressures moderated this month. The raw materials price index retreated from 42.3 to 31.1, suggesting input costs rose but at a slower pace than in May. The finished goods price index was largely unchanged at a reading of 10. More than 50 percent of respondents anticipate further increases in raw materials prices over the next six months, while 28 percent expect higher finished goods prices. The wages and benefits index moved down from 18.5 to 15.5, although the great majority of respondents noted no change in labor costs.

Expectations regarding future business conditions were less optimistic in June. The index of future general business activity was 2.9, its lowest reading since August 2010, and the index of future company outlook remained positive but fell to a 9-month low. Indexes of future manufacturing activity also fell in June, but remained in solid positive territory.

The Dallas Fed conducts the Texas Manufacturing Outlook Survey monthly to obtain a timely assessment of the state’s factory activity. Data were collected June 14–22, and 84 Texas manufacturers responded to the survey. Firms are asked whether output, employment, orders, prices and other indicators increased, decreased or remained unchanged over the previous month.

Survey responses are used to calculate an index for each indicator. Each index is calculated by subtracting the percentage of respondents reporting a decrease from the percentage reporting an increase. When the share of firms reporting an increase exceeds the share reporting a decrease, the index will be greater than zero, suggesting the indicator has increased over the prior month. If the share of firms reporting a decrease exceeds the share reporting an increase, the index will be below zero, suggesting the indicator has decreased over the prior month. An index will be zero when the number of firms reporting an increase is equal to the number of firms reporting a decrease.

Next release: July 25, 2011

Business Indicators Relating to Facilities and Products in Texas Current

Indicator Jun Index May Index Change Indicator Direction* Trend** (months) % Reporting Increase % Reporting No Change % Reporting Decrease Production 5.6 12.7 -7.1 Increasing 20 23.9 57.8 18.3 Capacity Utilization -0.8 11.1 -11.9 Decreasing 1 18.5 62.2 19.3 New Orders 6.4 1.1 +5.3 Increasing 8 24.3 57.8 17.9 Growth Rate of Orders 2.3 -5.4 +7.7 Increasing 1 23.1 56.1 20.8 Unfilled Orders -6.2 -7.8 +1.6 Decreasing 4 12.6 68.6 18.8 Shipments 0.4 8.0 -7.6 Increasing 8 20.5 59.4 20.1 Delivery Time 1.2 0.0 +1.2 Increasing 1 10.7 79.8 9.5 Materials Inventories 6.5 -0.1 +6.6 Increasing 1 21.1 64.3 14.6 Finished Goods Inventories 0.0 -4.3 +4.3 Unchanged 1 14.3 71.4 14.3 Prices Paid for Raw Materials 31.1 42.3 -11.2 Increasing 23 36.1 58.9 5.0 Prices Received for Finished Goods 10.0 8.8 +1.2 Increasing 8 14.0 82.0 4.0 Wages and Benefits 15.5 18.5 -3.0 Increasing 19 16.7 82.1 1.2 Employment 5.3 11.6 -6.3 Increasing 8 14.3 76.7 9.0 Hours Worked 1.5 13.2 -11.7 Increasing 2 16.3 68.9 14.8 Capital Expenditures 2.4 8.7 -6.3 Increasing 8 7.2 88.0 4.8

General Business Conditions Current

Indicator Jun Index May Index Change Indicator Direction* Trend** (months) % Reporting Improved % Reporting No Change % Reporting Worsened Company Outlook 7.2 3.2 +4.0 Improving 9 20.8 65.6 13.6 General Business Activity -17.5 -7.4 -10.1 Worsening 2 10.1 62.3 27.6

Business Indicators Relating to Facilities and Products in Texas Six Months Ahead

Indicator Jun Index May Index Change Indicator Direction* Trend** (months) % Reporting Increase % Reporting No Change % Reporting Decrease Production 37.1 41.3 -4.2 Increasing 28 46.7 43.7 9.6 Capacity Utilization 27.4 43.5 -16.1 Increasing 28 38.3 50.8 10.9 New Orders 28.0 40.8 -12.8 Increasing 28 39.0 50.0 11.0 Growth Rate of Orders 22.1 27.7 -5.6 Increasing 28 30.5 61.1 8.4 Unfilled Orders -7.3 15.4 -22.7 Decreasing 1 9.8 73.2 17.1 Shipments 35.1 43.7 -8.6 Increasing 28 46.4 42.3 11.3 Delivery Time -6.1 2.2 -8.3 Decreasing 1 8.5 76.8 14.6 Materials Inventories 3.6 9.8 -6.2 Increasing 9 20.5 62.7 16.9 Finished Goods Inventories 2.4 -1.1 +3.5 Increasing 1 19.3 63.9 16.9 Prices Paid for Raw Materials 45.1 51.6 -6.5 Increasing 27 52.4 40.2 7.3 Prices Received for Finished Goods 22.2 25.0 -2.8 Increasing 11 28.4 65.4 6.2 Wages and Benefits 33.5 30.6 +2.9 Increasing 85 34.8 63.9 1.3 Employment 14.5 28.3 -13.8 Increasing 22 26.5 61.4 12.0 Hours Worked 7.3 10.9 -3.6 Increasing 28 15.7 75.9 8.4 Capital Expenditures 21.7 18.5 +3.2 Increasing 19 25.3 71.1 3.6

General Business Conditions Six Months Ahead

Indicator Jun Index May Index Change Indicator Direction* Trend** (months) % Reporting Improved % Reporting No Change % Reporting Worsened Company Outlook 15.6 19.6 -4.0 Improving 25 30.1 55.4 14.5 General Business Activity 2.9 7.9 -5.0 Improving 10 21.5 59.9 18.6

*Indicator direction refers to this month's index. If index is positive (negative), indicator is increasing (decreasing) or improving (worsening). If zero, indicator is unchanged.

**Number of months moving in current direction.

Data have been seasonally adjusted as necessary. See information on seasonal adjustment.

Downloadable chart: Low-res (72 dpi) | Hi-res (300 dpi)

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

Nonmetallic Mineral Product Manufacturing
We expect housing to remain sluggish for the next couple of years. This weakness will continue to impact our business levels. The current overhang in housing inventory needs to be absorbed before any significant expansion in building can occur. Our outlook is far from optimistic.

Primary Metal Manufacturing
Our business has been positively impacted by the bankruptcy of a competitor.

Fabricated Metal Product Manufacturing
Our expectation of improved business six months from now is not based on the general economy, but is based on some specific customers that we expect to increase their activity for reasons unique to them.

Machinery Manufacturing
We are seeing some modest improvement in our activity levels (maintenance and industrial services for downstream energy companies). Refining and petrochemical businesses are currently enjoying very strong margins. Overall economic activity still feels like it is slowing down to me—more of an attitude check than being based on specific data.

Chemical Manufacturing
The second and third quarters are normally our strongest quarters. So far, the second quarter has been weaker than we expected. We have seen some seasonal increase but not to the level we had anticipated.

Paper Manufacturing
Business has been stagnant the last few weeks and we aren't seeing any signs of improvement. We have not lost any business; our customers just aren't ordering as we expected for this time of year.

Food Manufacturing
Our sales are strong, but high commodity prices have really hurt us.