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Gloomy May Report Suggests Weakness Resumes for Texas Manufacturing

Dallas Fed economist says “it’s a difficult time” for many Texas manufacturers

For immediate release: May 31, 2016

DALLASTexas factory activity declined in May after two months of increases, according to the Federal Reserve Bank of Dallas’ Texas Manufacturing Outlook Survey.

The production index—a key measure of state manufacturing conditions—fell from 5.8 in April to –13.1 in May, hitting its lowest reading in a year.

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

“We saw some hopeful signs of a rebound in manufacturing activity the last couple of months, but the gloomy May report suggests that weakness resumed,” said Emily Kerr, Dallas Fed business economist.

Other indexes of current manufacturing activity also reflected contraction this month. The new orders index fell more than 20 points to –14.9 after pushing into positive territory last month. The growth rate of orders index has remained negative since late 2014 and fell to –14.7 in May after climbing to near zero in April. The capacity utilization and shipments indexes returned to negative territory after two months of positive readings, coming in at yearlong lows of –11.0 and –11.5, respectively.

“It’s a difficult time for many manufacturers, with contraction in the energy sector rippling through to some customers, quite a bit of uncertainty about demand, and other headwinds,” Kerr said. “Hopefully the recent rise in oil prices, if sustained, will provide some relief from some of these headwinds in coming months.”

Perceptions of broader business conditions were more pessimistic this month. The general business activity index declined from –13.9 to –20.8. The company outlook index fell 10 points to –16.1 in May.

Latest readings on employment and workweek length indicated a fifth consecutive month of contraction in May. The employment index moved down to –6.7, while the hours worked index posted a double-digit decline from its April reading, coming in at –11.8.

Expectations regarding future business conditions were mixed in May. The index of future general business activity fell 2 points to –1.8, while the index for future company outlook remained positive but moved down to 4.4 this month. Indexes for future manufacturing activity fell but remained solidly positive.

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