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Texas Manufacturing Outlook Survey

Report in PDF

May 29, 2018

Texas Manufacturing Expansion Accelerates Notably

What’s New This Month

For this month’s survey, Texas business executives were asked supplemental questions on the labor market, wages and prices. Results for these questions from the Texas Manufacturing Outlook Survey (TMOS), Texas Service Sector Outlook Survey (TSSOS) and Texas Retail Outlook Survey (TROS) have been released together. Read the Special Questions results.

Texas factory activity rose markedly in May, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, increased 10 points to a 12-year high of 35.2, signaling further acceleration in output growth.

Most other indexes of manufacturing activity also indicated a sharp acceleration in May. The capacity utilization index rose notably from 18.7 to 32.2, and the shipments index jumped 20 points to 39.5. Demand growth picked up as the growth rate of orders index increased eight points to 26.5. All three measures reached their highest readings since 2006. Meanwhile, the new orders index held steady at 27.7.

Perceptions of broader business conditions were even more positive in May than in April. The general business activity index rose five points to 26.8, and the company outlook index rose four points to 28.0. These readings are far above their respective averages.

Labor market measures suggested stronger growth in employment and notably longer work hours in May. The employment index pushed up six points to 23.4, its highest reading in six years. Twenty-nine percent of firms noted net hiring, compared with 5 percent that noted net layoffs. The hours worked index shot up nine points to 23.2.

Price and wage pressures remained highly elevated in May. The raw materials prices index and wages and benefits index edged down to 44.0 and 24.3, respectively—still well above their average readings. The finished goods prices index moved up to 20.5, with a quarter of firms noting that prices rose this month.

Expectations regarding future business conditions remained largely optimistic in May. The indexes of future general business activity and future company outlook were largely unchanged at 30.0 and 35.2, respectively, with both readings significantly above average. Most other indexes for future manufacturing activity pushed further into positive territory.

Next release: Monday, June 25

Data were collected May 15–23, and 107 Texas manufacturers responded to the survey. The Dallas Fed conducts the Texas Manufacturing Outlook Survey monthly to obtain a timely assessment of the state’s factory activity. Firms are asked whether output, employment, orders, prices and other indicators increased, decreased or remained unchanged over the previous month

Survey responses are used to calculate an index for each indicator. Each index is calculated by subtracting the percentage of respondents reporting a decrease from the percentage reporting an increase. When the share of firms reporting an increase exceeds the share reporting a decrease, the index will be greater than zero, suggesting the indicator has increased over the prior month. If the share of firms reporting a decrease exceeds the share reporting an increase, the index will be below zero, suggesting the indicator has decreased over the prior month. An index will be zero when the number of firms reporting an increase is equal to the number of firms reporting a decrease. Data have been seasonally adjusted as necessary.

May 29, 2018

Results Summary

Historical data are available from June 2004 to the most current release month.

Business Indicators Relating to Facilities and Products in Texas
Current (versus previous month)
IndicatorMay IndexApr IndexChangeIndicator Direction*Trend** (Months)% Reporting Increase% Reporting
No Change
% Reporting Decrease

Production

35.2

25.3

+9.9

Increasing

23

45.0

45.2

9.8

Capacity Utilization

32.2

18.7

+13.5

Increasing

23

42.5

47.2

10.3

New Orders

27.7

27.9

–0.2

Increasing

19

40.1

47.5

12.4

Growth Rate of Orders

26.5

18.9

+7.6

Increasing

17

36.0

54.5

9.5

Unfilled Orders

4.1

7.2

–3.1

Increasing

14

15.6

72.9

11.5

Shipments

39.5

19.3

+20.2

Increasing

18

50.4

38.7

10.9

Delivery Time

10.2

14.5

–4.3

Increasing

11

16.6

77.0

6.4

Finished Goods Inventories

–6.6

1.7

–8.3

Decreasing

1

14.2

65.1

20.8

Prices Paid for Raw Materials

44.0

46.3

–2.3

Increasing

27

49.5

45.0

5.5

Prices Received for Finished Goods

20.5

17.0

+3.5

Increasing

22

25.5

69.5

5.0

Wages and Benefits

24.3

29.3

–5.0

Increasing

106

25.3

73.7

1.0

Employment

23.4

17.8

+5.6

Increasing

17

28.5

66.4

5.1

Hours Worked

23.2

14.3

+8.9

Increasing

19

28.4

66.4

5.2

Capital Expenditures

21.7

23.9

–2.2

Increasing

21

26.6

68.5

4.9

General Business Conditions
Current (versus previous month)
IndicatorMay IndexApr IndexChangeIndicator Direction*Trend** (Months)% Reporting Improved% Reporting
No Change
% Reporting Worsened

Company Outlook

28.0

23.6

+4.4

Improving

21

35.1

57.8

7.1

General Business Activity

26.8

21.8

+5.0

Improving

19

32.5

61.8

5.7

IndicatorMay IndexApr IndexChangeIndicator Direction*Trend** (Months)% Reporting Increase% Reporting
No Change
% Reporting Decrease

Outlook Uncertainty†

–2.9

12.4

–15.3

Decreasing

1

15.4

66.3

18.3

Business Indicators Relating to Facilities and Products in Texas
Future (six months ahead)
IndicatorMay IndexApr IndexChangeIndicator DirectionTrend* (Months)% Reporting Increase% Reporting
No Change
% Reporting Decrease

Production

58.0

52.3

+5.7

Increasing

111

63.2

31.6

5.2

Capacity Utilization

51.0

49.0

+2.0

Increasing

111

56.7

37.6

5.7

New Orders

48.5

47.6

+0.9

Increasing

111

53.1

42.3

4.6

Growth Rate of Orders

37.7

37.8

–0.1

Increasing

111

41.6

54.5

3.9

Unfilled Orders

13.8

15.5

–1.7

Increasing

32

19.4

75.0

5.6

Shipments

49.2

49.2

0.0

Increasing

111

56.5

36.2

7.3

Delivery Time

13.4

11.4

+2.0

Increasing

18

18.5

76.4

5.1

Finished Goods Inventories

11.9

11.1

+0.8

Increasing

7

20.8

70.3

8.9

Prices Paid for Raw Materials

51.9

49.1

+2.8

Increasing

110

53.9

44.1

2.0

Prices Received for Finished Goods

27.0

33.3

–6.3

Increasing

28

30.0

67.0

3.0

Wages and Benefits

50.6

50.1

+0.5

Increasing

168

51.0

48.6

0.4

Employment

37.6

35.4

+2.2

Increasing

66

44.4

48.8

6.8

Hours Worked

13.9

14.4

–0.5

Increasing

24

18.4

77.1

4.5

Capital Expenditures

32.2

31.0

+1.2

Increasing

102

36.2

59.8

4.0

General Business Conditions
Future (six months ahead)
IndicatorMay IndexApr IndexChangeIndicator Direction*Trend** (Months)% Reporting Increase% Reporting
No Change
% Reporting Worsened

Company Outlook

35.2

37.1

–1.9

Improving

28

41.7

51.8

6.5

General Business Activity

30.0

31.9

–1.9

Improving

24

36.4

57.2

6.4

*Indicator direction refers to this month's index. If index is positive (negative), indicator is increasing (decreasing) or improving (worsening). If zero, indicator is unchanged.

**Number of months moving in current direction.

†Added to survey in January 2018.

Data have been seasonally adjusted as necessary, with the exception of the outlook uncertainty index which does not yet have a sufficiently long time series to test for seasonality.

May 29, 2018

Production Index

Downloadable chart

May 29, 2018

Comments from Survey Respondents

These comments are from respondents' completed surveys and have been edited for publication.

Chemical Manufacturing

  • Wages and competition for skilled workers are getting to be major concerns.

Primary Metal Manufacturing

  • A supplier plant shutdown has lowered the feedstock into the plant in May.
  • We are being impacted by major raw material increases as a result of the Commerce Department’s sanctions and tariffs on aluminum. There is not enough domestic production of primary aluminum or extrusion billet to satisfy current demand in the United States. It will take months—possibly up to two years—before domestic production can be increased, and due to political uncertainties, it is uncertain whether companies will increase or turn on idled production. The current administration is considering quotas on imported raw aluminum, which would cause even more shortages. Bottom line—manufacturing jobs will be lost and production curtailed if the current situation continues. Our uptick in business is artificially driven, with customers concerned about future supply curtailments.
  • The volume of business is more than we can do within normal lead times, so our lead times are extending and almost double what they were three months ago.

Fabricated Metal Product Manufacturing

  • Our company is beginning to see oil and gas customers coming back strong and strengthening our backlogs. General business activity is good. Aluminum and steel price increases are driving us to raise prices to customers, who are not happy about those increases. Therefore, customers begin shopping our new prices, which creates a period of uncertainty with the customer relationships. Conversely, we are seeing increases in our requests to quote new opportunities because other suppliers/competitors are raising their prices, too.
  • Tariffs on steel, aluminum and soft woods have increased prices, regardless of whether the tariff actually exists. Businesses will use any excuse to raise prices if they can. Fuel has been increasing steadily, primarily gasoline, followed by diesel. Fortunately for our business, natural gas—which is used in the production of glass and aluminum—has remained steady, thus keeping surcharges stable. Wages continue to rise as the pool of potential employees has all but evaporated. With the growth in Texas, along with the changes in immigration, hiring has become a full-time endeavor here. Interest rates increasing are probably the largest threat on the horizon. Since we are tied to the housing and remodeling industries, our market is interest rate sensitive. Even though rates are still near historic lows, I see current rates as the new standard. When I was young, the standard was 12 percent roughly, so a 1–2 percent increase raised concerns. Well, with a new standard of 3–4 percent, a 1–2 percent increase in the next 18 months is going to be severe, in my opinion. Interest rates have been so low for so long, most people do not understand how higher rates can change their lives. To summarize, business is stable, but there are problems everywhere.
  • We are being covered up with quotes but are not seeing project starts and backlog increases.

Machinery Manufacturing

  • Business remains strong and continues to grow. It is a great business environment.
  • We are hopeful the rise in oil prices will bring us some much-needed work. We are cautiously optimistic.
  • Rising metals costs and rising freight costs are concerns going forward.

Computer and Electronic Product Manufacturing

  • Electronic component lead times and allocations are affecting the ability to deliver.

Printing and Related Support Activities

  • We have gotten lucky and landed a couple of nice, big orders that are keeping us busy. We are worried about pressure to raise wages, combined with having to pay more for raw materials, yet not seeming to be able to pass along price increases easily.
  • The impacts of Hurricane Harvey are still a drag on the retail economy.

Food Manufacturing

  • Stainless steel prices have increased due to tariff restrictions, and the possible purchase price per unit has decreased.

Miscellaneous Manufacturing

  • We are having one of the best years in company history. Now, if we can hire our open positions and produce all the products we could sell, it would be even more amazing. We want to keep America open for global trade. It does worry us about the potential of losing access to, or supply from, certain overseas markets, but the risk is worth it if we are going to negotiate more fair terms. We are supportive of short-term pain and volatility for a better long-term competitive position and a stronger America.

 

Historical Data

Historical data can be downloaded dating back to June 2004.

Indexes

Download indexes for all indicators. For the definitions of all variables, see Data Definitions.

Unadjusted
Seasonally adjusted

All Data

Download indexes and components of the indexes (percentage of respondents reporting increase, decrease, or no change). For the definitions of all variables, see Data Definitions.

Unadjusted
Seasonally adjusted

Questions regarding the Texas Manufacturing Outlook Survey can be addressed to Emily Kerr at emily.kerr@dal.frb.org.

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