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Dallas Fed: Texas manufacturing activity weakens, employment growth slows

DALLAS—Texas factory activity contracted again in August, according to business executives responding to the Texas Manufacturing Outlook Survey.

“Contraction continues in the Texas manufacturing sector, with declines seen in new orders, production, and capital spending,” said Emily Kerr, senior business economist at the Dallas Fed. “Employment growth continued but slowed slightly. Price pressures remained subdued, and wage growth elevated. Looking ahead, manufacturing outlooks continued to deteriorate.”

Key takeaways from this month’s survey: 

  • The production index fell six points to -11.2—its lowest level since May 2020.
  • The new orders index has been in negative territory for more than a year and posted a reading of -15.8, up slightly from July.
  • Labor market measures suggest slower growth in employment and shorter workweeks in August.
  • Price pressures remained rather subdued in August, while wage growth accelerated.
  • The general business activity index stayed negative but ticked up to -17.2, while the company outlook index was largely unchanged at -18.4.

The Dallas Fed asked a series of special questions on wages, prices and the impact of the recent heat wave in its August Texas Business Outlook Surveys and heard back from 352 business executives (services and manufacturing) Aug. 15–23.

“Expectations for 2023 wage and selling price growth moderated slightly from May, while input price growth expectations were unchanged,” Kerr said. “The results also show that it was more difficult to pass cost increases on to customers in the way of price increases over the past three months. Regarding the recent heat wave, nearly a quarter of Texas businesses say it’s had a negative impact on their production/revenue, though a few noted a positive impact.”

Key takeaways from the special questions:

  • Texas businesses expect wages to increase 5.0 percent this year, on average, down slightly from May estimates and down from a 7.6 percent increase in 2022.
  • They expect input prices to increase 4.7 percent, unchanged from May estimates and down from a 9.6 percent increase last year.
  • They expect to raise their selling prices 3.3 percent, down 0.5 points from May estimates and down from a 7.4 percent increase last year.
  • Less than one-third of businesses say they are passing most or all of their higher costs on to customers, and significantly more say cost pass-through has become harder over the past three months than say it has become easier.

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Media contact:
Jon Prior
Federal Reserve Bank of Dallas
Phone: 214-922-6857