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Texas Manufacturing Expands Modestly, Outlook Worsens, Says Dallas Fed Survey

For Immediate Release: December 31, 2018

DALLAS—Texas factory activity expanded at a modest pace in December, according to the Federal Reserve Bank of Dallas’ Texas Manufacturing Outlook Survey.

The production index, a key measure of state manufacturing conditions, inched down one point to 7.3. Positive readings in the survey generally indicate expansion of factory activity, while readings below zero generally indicate contraction.

Perceptions of broader business conditions turned slightly negative. The general business activity index fell 23 points to -5.1, hitting its lowest level since mid-2016. The company outlook index dropped 17 points to -3.4. More than 20 percent of manufacturers noted their outlook worsened.

“The Texas manufacturing sector ended the year with modest growth, a downshift from the more robust expansion seen earlier in the year. Respondents’ comments point to higher interest rates and reduced activity in the housing and energy sectors as factors restraining growth,” said Emily Kerr, Dallas Fed senior business economist. “Outlooks turned slightly negative in December, with the company outlook index dipping below zero for the first time in more than two years. Declining oil prices and political uncertainty were among concerns cited by firms going forward.”

The December report also includes results to special questions on costs, prices and margins, which cover not only manufacturing but also services and retail.

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

Employment growth slowed. The employment index retreated five points to 11.0, a level still above average. The hours worked index held steady at 5.0.

Price increases eased but wage growth picked up. The raw materials prices index slipped five points to 28.8, and the finished goods prices index ticked down one point to 6.6. Both came in near their average levels. Meanwhile, compensation costs continued to rise at a faster clip than normal. The wages and benefits index moved up four points to 29.2.

Manufacturers were less optimistic about future business conditions. The indexes of future general business activity and future company outlook fell 23 points to 3.2 and 8.8, respectively. Most other indexes for future manufacturing activity also posted double-digit declines this month but remained solidly in positive territory.

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
Email: jennifer.chamberlain@dal.frb.org