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Dallas Fed: Texas manufacturing sector contracts slightly

February 27, 2023

DALLAS—Texas factory activity declined in February for the first time since May 2020, according to business executives responding to the Texas Manufacturing Outlook Survey.

“The employment index registered a near-zero reading this month—indicating flat head counts—which is a noteworthy change from the robust employment growth seen over the past couple of years,” said Emily Kerr, senior business economist at the Dallas Fed. “Price and wage pressures increased. Outlooks worsened notably, and uncertainty rose.”

Key takeaways from this month’s survey: 

  • The production index edged down from 0.2 to -2.8, a reading suggestive of a modest contraction in output.
  • The new orders index was negative for a ninth month in a row and moved down nine points to -13.2.
  • Labor market measures suggest relatively flat employment and longer workweeks.
  • The price and wage indexes moved up from their January readings.
  • The general business activity index pushed down from -8.4 to -13.5.
  • The company outlook index has been negative for a full year and plummeted 15 points this month to -17.5.

Demand expected to pick up in second half of 2023

The Dallas Fed asked a series of special questions on operating margins and demand expectations in our February Texas Business Outlook Surveys and heard back from 405 services and manufacturing business executives during the Feb. 14–22 survey period.

“Nearly equal shares of respondents expect an increase in operating margins over the next six months as expect a decrease (37 percent versus 38 percent), which is a bit of a stabilization from last November when we last asked this question,” Kerr said. “In a new question about demand expectations, 43 percent of firms expect demand to be higher this year than last, while 27 percent expect it to be lower. Among firms expecting an increase, the great majority (65 percent) say the stronger increase will be in the second half of 2023.”

For more information visit DallasFed.org.

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Media contact:
Jon Prior
Federal Reserve Bank of Dallas
Phone: 214-922-6857
Email: jon.prior@dal.frb.org