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Texas Manufacturing Activity Contracts Again in February, Says Dallas Fed Survey

For immediate release: February 29, 2016

DALLAS—Texas factory activity contracted again in February, according to the Federal Reserve Bank of Dallas’ Texas Manufacturing Outlook Survey.

The production index—a key measure of state manufacturing conditions—remained negative but edged up from –10.2 to –8.5, suggesting output declined but at a slightly softer pace than in January.

Positive readings in the survey generally indicate expansion of factory activity, while readings below zero generally indicate contraction.

“We saw a very sharp but not unexpected decline in manufacturing output last month—with the production index falling well into negative territory in January—and this second negative reading suggests the downturn was not transitory,” said Emily Kerr, Dallas Fed business economist.

Most other indexes of current manufacturing activity also indicated further contraction in February. The new orders index fell further negative to its lowest level since May 2009. The growth rate of orders index remained strongly negative, and the capacity utilization index was largely unchanged at –8.2.

Meanwhile, the shipments index bounced back closer to zero after plunging to –11 last month. Perceptions of broader business conditions remained strongly negative in February. The general business activity index has been negative for more than a year and came in at –31.8, up slightly from January. The company outlook index posted a third negative reading in a row but edged up to –17.4.

Labor market indicators reflected further decline in February. The employment index dropped 7 points to –11.1, hitting its lowest reading since November 2009. The hours worked index was fairly steady at –9.8, suggesting a continued pullback in employee hours.

Expectations regarding future business conditions were mixed in February. The index of future general business activity reversed its 22-point decline in January with a 22-point increase this month, with the index coming in at –2.1. The index for future company outlook rebounded strongly to 15.1 after dipping into negative territory last month. Indexes for future manufacturing activity pushed further into positive territory.

“Most survey measures are firmly negative, with the new orders index at a level last seen during Texas’ 2008-2009 recession,” said Kerr. “With demand falling—which several manufacturers in the survey partly attributed to reduced capital spending among energy firms—the near-term outlook remains bleak. But, some advancement was seen in February in our six-months-ahead indexes, and an oil- and gas-related equipment manufacturer said he anticipates improvement in the second half of the year.”

For this month’s Texas Business Outlook Surveys, respondents were also asked supplemental questions on employment expectations and the labor market in Texas.

Texas produces more than 11 percent of total manufactured goods in the United States, ranking second behind California in factory production.

The Dallas Fed conducts the Texas Manufacturing Outlook Survey monthly to obtain a timely assessment of the state’s factory activity.

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Media contact:
Justin Jones
Federal Reserve Bank of Dallas
Phone: (214) 922-5449
Email: justin.jones@dal.frb.org