Texas manufacturing sustains momentum in August, says Dallas Fed survey

For Immediate Release: August 27, 2018

DALLAS—Texas factory output continued to expand in August, according to the Federal Reserve Bank of Dallas’ Texas Manufacturing Outlook Survey. The production index—a key measure of state manufacturing conditions—held steady at 29.3.

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

While manufacturers’ perceptions of broader business conditions remained highly positive, they continued to express uncertainty about the future. The general business activity index edged down to 30.9, while the company outlook index rose seven points to 27.3. The index measuring uncertainty regarding companies’ outlooks held fairly steady in August at 16.2, well above its readings in the first half of the year.

“It was another very strong report for Texas manufacturing, with broad-based growth spanning output, employment and even outlooks, although we do see a second month of elevated uncertainty regarding those outlooks, and comments from respondents mention caution and volatility stemming from tariffs and trade discussions,” said Emily Kerr, Dallas Fed senior business economist.

This month, business executives from both manufacturing and service sector firms were asked special questions on the labor market, wages and prices.

“Two-thirds of Texas firms surveyed say they’re having problems finding qualified workers, which isn’t surprising with the state’s unemployment rate hovering around 4 percent this year, which is very low and certainly reflects a tight labor market,” Kerr said. “In response to this labor market tightness, more firms are opting to raise wages to recruit and retain employees—about 63 percent. That’s up two percentage points from last quarter and up from 45 percent a couple of years ago.”

Here are some additional key takeaways from this month’s manufacturing report:

Employment indicators pointed to continued strength. The employment index remained at a 13-year high of 28.9, with 34 percent of firms noting net hiring, compared with 5 percent noting net layoffs. The hours worked index edged down to 19.0.

Price and wage pressures remained elevated, but price increases slowed a bit. The raw materials prices index moved down to 45.3, and the finished goods prices index fell eight points to 15.3. Compensation costs continued to rise at a faster clip than normal, with the wages and benefits index coming in at 33.4, just slightly above its July reading.

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:

Jennifer Chamberlain

Federal Reserve Bank of Dallas

Phone: (214) 922-6748

E-mail: jennifer.chamberlain@dal.frb.org