Texas Economy

Texas Manufacturing Outlook Survey

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

Business Indicators Relating to Facilities and Products in Texas Current (versus previous month)
Indicator	Aug Index	Jul Index	Change	Indicator 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)
Indicator	Aug Index	Jul Index	Change	Indicator 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


Indicator	Aug Index	Jul Index	Change	Indicator 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)
Indicator	Aug Index	Jul Index	Change	Indicator Direction	Trend* (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)
Indicator	Aug Index	Jul Index	Change	Indicator 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

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.