Dallas Fed: Texas manufacturing slips back into contraction

DALLAS—Texas factory activity contracted in November after two months of expansion, according to business executives responding to the Texas Manufacturing Outlook Survey.

“Texas’ manufacturing sector slipped back into contractionary territory this month, with the production index turning negative again after positive readings the past two months,” said Emily Kerr, senior business economist at the Dallas Fed. “Job growth slowed, and wage growth normalized after more than two years of unusually high pay increases. For a second consecutive month selling prices declined on net, and results to a special question shows manufacturers’ operating margins have declined over the past six months, on net, with 20 percent noting a substantial decrease. Overall, firms’ outlooks and assessments of general business conditions continued to worsen.”

Key takeaways from this month’s survey:

• The production index fell 12 points to -7.2.
• The new orders index has been negative for 18 months and dropped from -8.8 to -20.5.
• Labor market measures suggest slightly slower employment growth and shorter workweeks.
• Wage growth normalized this month, while material cost growth remained below average and selling prices fell.
• The general business activity and company outlook indexes remained largely unchanged at -19.9 and -18.8, respectively.

The Dallas Fed asked a series of special questions on expected demand and operating margins in our November Texas Business Outlook Surveys and heard back from 365 business executives (services and manufacturing) Nov. 13–21.

Key takeaways from special questions:

• More firms expect increased demand over the next six months than decreased, though the margin is smaller now than in February.
• Firms expecting a decrease in demand primarily attribute it to changes in general economic conditions, more so than changes in conditions specific to their industry or firm.
• Operating margins have declined over the last six months on net and are expected to decline over the next six months as well, thought the margin between the share of firms reporting a decrease versus an increase is smaller looking ahead than looking back, indicating some stabilization.

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