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Texas Manufacturing Outlook Survey

Report in PDF

August 27, 2018

Robust Expansion in Texas Manufacturing Continues

What’s New This Month

For this month’s survey, Texas business executives were asked supplemental questions on the labor market. 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 maintained its strong momentum in August, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, held steady at 29.3.

Other indexes of manufacturing activity also indicated continued solid expansion in August. The new orders index changed little at 23.9, while the growth rate of orders index moved up three points to 19.9. The capacity utilization index was unchanged at 25.2, and the shipments index slipped five points to 26.0.

Perceptions of broader business conditions remained highly positive this month, although uncertainty remained elevated. The general business activity index edged down to 30.9, while the company outlook index rose seven points to 27.3, with more than 30 percent of manufacturers saying their outlook had improved from July. The index measuring uncertainty regarding companies’ outlooks held fairly steady in August at 16.2, well above its readings in the first half of the year.

Labor market measures continued to suggest robust hiring and longer work hours. The employment index remained at a 13-year high of 28.9. Thirty-four percent of firms noted net hiring, compared with 5 percent noting net layoffs. The hours worked index edged down to 19.0.

While price and wage pressures remained highly elevated, a slight deceleration was seen in price increases. The raw materials prices index moved down to 45.3, and the finished goods prices index fell eight points to 15.3. Compensation costs continued to rise at a faster clip than normal, with the wages and benefits index coming in at 33.4, just slightly above its July reading.

Expectations regarding future business conditions were slightly less optimistic in August. The indexes of future general business activity and future company outlook edged down to 34.7 and 34.3, respectively. Other indexes for future manufacturing activity showed mixed movements but remained in solidly positive territory.

Next release: Monday, September 24

Data were collected Aug. 14–22, and 109 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.

August 27, 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)
IndicatorAug IndexJul IndexChangeIndicator Direction*Trend** (Months)% Reporting Increase% Reporting
No Change
% Reporting Decrease

Production

29.3

29.4

–0.1

Increasing

26

40.7

48.0

11.4

Capacity Utilization

25.2

25.0

+0.2

Increasing

26

35.4

54.4

10.2

New Orders

23.9

23.3

+0.6

Increasing

22

36.3

51.3

12.4

Growth Rate of Orders

19.9

17.0

+2.9

Increasing

20

29.8

60.3

9.9

Unfilled Orders

9.1

14.9

–5.8

Increasing

17

17.5

74.1

8.4

Shipments

26.0

30.8

–4.8

Increasing

21

38.4

49.1

12.4

Delivery Time

8.9

12.7

–3.8

Increasing

14

18.3

72.3

9.4

Finished Goods Inventories

13.9

–1.9

+15.8

Increasing

1

20.4

73.1

6.5

Prices Paid for Raw Materials

45.3

48.6

–3.3

Increasing

30

51.1

43.1

5.8

Prices Received for Finished Goods

15.3

22.9

–7.6

Increasing

25

21.3

72.7

6.0

Wages and Benefits

33.4

32.4

+1.0

Increasing

109

33.9

65.6

0.5

Employment

28.9

28.9

0.0

Increasing

20

34.2

60.5

5.3

Hours Worked

19.0

22.2

–3.2

Increasing

22

25.5

68.0

6.5

Capital Expenditures

25.1

26.6

–1.5

Increasing

24

30.8

63.5

5.7

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

Company Outlook

27.3

20.4

+6.9

Improving

24

31.4

64.5

4.1

General Business Activity

30.9

32.3

–1.4

Improving

22

36.2

58.5

5.3

IndicatorAug IndexJul IndexChangeIndicator Direction*Trend** (Months)% Reporting Increase% Reporting
No Change
% Reporting Decrease

Outlook Uncertainty†

16.2

17.0

–0.8

Increasing

3

21.9

72.4

5.7

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

Production

46.6

50.6

–4.0

Increasing

114

53.8

39.0

7.2

Capacity Utilization

38.2

46.4

–8.2

Increasing

114

46.7

44.8

8.5

New Orders

47.4

50.6

–3.2

Increasing

114

54.0

39.4

6.6

Growth Rate of Orders

40.4

35.1

+5.3

Increasing

114

44.6

51.2

4.2

Unfilled Orders

9.7

12.4

–2.7

Increasing

35

19.9

69.9

10.2

Shipments

49.2

49.7

–0.5

Increasing

114

53.6

42.0

4.4

Delivery Time

7.1

4.3

+2.8

Increasing

21

16.0

75.1

8.9

Finished Goods Inventories

9.9

3.8

+6.1

Increasing

10

22.8

64.4

12.9

Prices Paid for Raw Materials

43.5

46.1

–2.6

Increasing

113

46.5

50.5

3.0

Prices Received for Finished Goods

32.0

26.6

+5.4

Increasing

31

36.0

60.0

4.0

Wages and Benefits

45.5

53.2

–7.7

Increasing

171

48.3

48.8

2.8

Employment

42.2

39.9

+2.3

Increasing

69

44.6

53.0

2.4

Hours Worked

11.3

18.1

–6.8

Increasing

27

21.3

68.7

10.0

Capital Expenditures

39.9

31.9

+8.0

Increasing

105

45.6

48.8

5.7

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

Company Outlook

34.3

37.2

–2.9

Improving

31

38.8

56.7

4.5

General Business Activity

34.7

36.2

–1.5

Improving

27

38.7

57.3

4.0

*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.

August 27, 2018

Production Index

Downloadable chart

August 27, 2018

Comments from Survey Respondents

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

Chemical Manufacturing

  • Import tariffs on $200 billion of goods will have a negative impact on business.

Nonmetallic Mineral Product Manufacturing

  • Tariff threats are problematic. We cannot enter into purchase contracts. Actual tariffs would be a huge problem.

Primary Metal Manufacturing

  • Tariffs are an issue for our customers. Domestic aluminum manufacturers must pay a tariff on their aluminum that overseas competitors do not pay.

Fabricated Metal Product Manufacturing

  • August has started slower than July and prior months to date. I’m not sure if this is seasonal—back to school, end of vacations, etc.—but things are definitely slower. Steel pricing has flattened out and may start to trickle down. Uncertainty has gone up with nonstop trade war chatter, the strengthening dollar and lack of skilled workers, and because we can’t find CDL [commercial] drivers to pick up or deliver goods.
  • Higher metal prices and extended delivery times continue to be challenges.

Machinery Manufacturing

  • We are finding that customers are paying their bills much better than a year ago. If they are behind and we call them about it, they respond very quickly with payment. This is a first, and it appears customers are flush with cash. They are concerned about staying current with their suppliers for fear of being cut off. This indicates to me that they have good business trends also. This trend is true for small as well as Fortune 500 companies.
  • As a global free-market capitalist, I do not believe in tariffs or subsidies. I believe that President Trump’s initial proposals are simply how he negotiates. Yet companies are basing their decisions on his initial offer, not the final deal. Business should react to policy, not proposals.
  • The second round of tariffs on Chinese products will start affecting our company in the next quarter. Hopefully, these new tariffs will be short term in duration.
  • With the increase in oil prices, we are seeing improved sales and projects being funded.

Computer and Electronic Product Manufacturing

  • Our industry (and our company) have had 22 months of expansion, near average for a cyclical upturn. The trade impact is unclear—many international and U.S. companies are nervous about what it will do for them. Commodity products in our space have long lead times, some over 52 weeks.

Transportation Equipment Manufacturing

  • We are still cautious and dependent on a reasonable fix to trade discussions.
  • Tax rate change has eased the cash requirement for planned improvements and modifications in the production facility during the next several months.

Food Manufacturing

  • Current trade and tariff policies have created volatility and ill will in our export customer base. Customers are looking to European or South American suppliers for second-source options to avoid tariffs or hedge bets on dollar strength and/or supply disruption. The current domestic labor market is the tightest we have ever experienced. It will limit growth.

Paper Manufacturing

  • It’s all steady at this point. We’re still unsure of any effect from tariffs.

Miscellaneous Manufacturing

  • Everyone seems to be waiting for the outcome of the midterm elections.

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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