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Texas Manufacturing Outlook Survey

Report in PDF

September 24, 2018

Texas Manufacturing Expansion Continues amid Increased Uncertainty

What’s New This Month

For this month’s survey, Texas business executives were asked supplemental questions on the impact of tariffs. Results for these questions from the Texas Manufacturing Outlook Survey, Texas Service Sector Outlook Survey and Texas Retail Outlook Survey have been released together. Read the Special Questions results.

Texas factory activity continued to expand in September, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, dipped six points to 23.3, indicating output growth continued but at a slower pace than last month.

Other indexes of manufacturing activity also suggested slower expansion in September. The new orders index fell nine points to 14.7, its lowest reading in six months. Similarly, the growth rate of orders index slipped to 11.5, also a six-month low. The capacity utilization index retreated slightly to 21.6, while the shipments index fell five points to 20.8.

Perceptions of broader business conditions remained positive this month, although outlooks were less optimistic and uncertainty increased further. The general business activity index edged down but remained highly elevated at 28.1. The company outlook index held above average but retreated nine points to 18.2, its lowest reading in more than a year. The relatively new index measuring uncertainty regarding companies’ outlooks moved up four points to a new high of 19.9.

Labor market measures suggest employment levels and work hours rose at a slower pace in September. The employment index remained positive but dropped 11 points to 17.7. One-quarter of firms noted net hiring, compared with 7 percent noting net layoffs. The hours worked index moved down to 12.7.

While price and wage pressures remained highly elevated in September, selling price increases again saw some deceleration. The raw materials prices index held fairly steady at 44.4, while the finished goods prices index edged down to 13.6. Compensation costs continued to rise at a faster clip than normal, with the wages and benefits index holding at 33.0.  

Expectations regarding future business conditions remained positive in September. The indexes of future general business activity and future company outlook came in at 38.0 and 33.8, respectively. Other indexes for future manufacturing activity showed mixed movements this month but remained solidly in positive territory.

Next release: Monday, October 29

Data were collected Sep. 11–19, and 116 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.

September 24, 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)
IndicatorSep IndexAug IndexChangeIndicator Direction*Trend** (Months)% Reporting Increase% Reporting
No Change
% Reporting Decrease

Production

23.3

29.3

–6.0

Increasing

27

31.9

59.5

8.6

Capacity Utilization

21.6

25.2

–3.6

Increasing

27

29.7

62.2

8.1

New Orders

14.7

23.9

–9.2

Increasing

23

28.2

58.3

13.5

Growth Rate of Orders

11.5

19.9

–8.4

Increasing

21

24.2

63.1

12.7

Unfilled Orders

1.8

9.1

–7.3

Increasing

18

13.4

75.0

11.6

Shipments

20.8

26.0

–5.2

Increasing

22

29.9

61.0

9.1

Delivery Time

4.1

8.9

–4.8

Increasing

15

13.6

76.9

9.5

Finished Goods Inventories

6.0

13.9

–7.9

Increasing

2

12.9

80.2

6.9

Prices Paid for Raw Materials

44.4

45.3

–0.9

Increasing

31

45.0

54.4

0.6

Prices Received for Finished Goods

13.6

15.3

–1.7

Increasing

26

20.4

72.8

6.8

Wages and Benefits

33.0

33.4

–0.4

Increasing

110

34.9

63.2

1.9

Employment

17.7

28.9

–11.2

Increasing

21

25.1

67.5

7.4

Hours Worked

12.7

19.0

–6.3

Increasing

23

18.1

76.5

5.4

Capital Expenditures

17.0

25.1

–8.1

Increasing

25

21.0

74.9

4.0

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

Company Outlook

18.2

27.3

–9.1

Improving

25

25.6

67.0

7.4

General Business Activity

28.1

30.9

–2.8

Improving

23

31.4

65.3

3.3

IndicatorSep IndexAug IndexChangeIndicator Direction*Trend** (Months)% Reporting Increase% Reporting
No Change
% Reporting Decrease

Outlook Uncertainty†

19.9

16.2

+3.7

Increasing

4

25.9

68.1

6.0

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

Production

43.7

46.6

–2.9

Increasing

115

49.5

44.7

5.8

Capacity Utilization

41.0

38.2

+2.8

Increasing

115

48.0

45.0

7.0

New Orders

44.9

47.4

–2.5

Increasing

115

48.8

47.3

3.9

Growth Rate of Orders

37.2

40.4

–3.2

Increasing

115

42.3

52.6

5.1

Unfilled Orders

12.7

9.7

+3.0

Increasing

36

20.7

71.3

8.0

Shipments

42.2

49.2

–7.0

Increasing

115

46.9

48.4

4.7

Delivery Time

5.7

7.1

–1.4

Increasing

22

11.9

81.9

6.2

Finished Goods Inventories

10.3

9.9

+0.4

Increasing

11

18.7

72.9

8.4

Prices Paid for Raw Materials

43.0

43.5

–0.5

Increasing

114

46.7

49.5

3.7

Prices Received for Finished Goods

28.0

32.0

–4.0

Increasing

32

35.5

57.0

7.5

Wages and Benefits

57.4

45.5

+11.9

Increasing

172

57.8

41.8

0.4

Employment

39.4

42.2

–2.8

Increasing

70

42.8

53.8

3.4

Hours Worked

11.4

11.3

+0.1

Increasing

28

17.8

75.8

6.4

Capital Expenditures

37.8

39.9

–2.1

Increasing

106

41.0

55.8

3.2

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

Company Outlook

33.8

34.3

–0.5

Improving

32

38.8

56.2

5.0

General Business Activity

38.0

34.7

+3.3

Improving

28

40.2

57.6

2.2

*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.

September 24, 2018

Production Index

Downloadable chart

September 24, 2018

Comments from Survey Respondents

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

Chemical Manufacturing

  • We are starting to see our larger clients postpone inventory positions, thus increasing cycle times. Raw materials are increasingly more difficult to obtain, even with supply agreements in place.
  • The demand for skilled employees is much higher than the supply. If skilled workers don't move to the Texas Gulf Coast, there will be trouble.
  • We are experiencing a severe raw material shortage, which is causing a flat rate of production. We could sell more, but lack of raw materials limits this.

Nonmetallic Mineral Product Manufacturing

  • Prices for steel have increased by 30 percent due to import tariffs. This has cut operating margins for the past four months and will continue to have an effect until these fixed-price bids are completed. New contracts will reflect higher raw material costs and higher prices to our customers.

Primary Metal Manufacturing

  • We still have major concerns and uncertainty in regard to future raw material prices and availability due to tariffs, sanctions and possible quotas on raw aluminum.
  • Business is good. We love President Trump and his policies. Keep it up.
  • We are still working through burdensome regulatory issues, primarily the new silica rule, in which the Labor Department has been reluctant to hear industry concerns. Regardless, we continue to move forward with expansion and capital expenditures to reduce silica dust throughout the entire facility.  

Fabricated Metal Product Manufacturing

  • The first two to three weeks of August was a clear slowdown. The September activity and quote level is back to first- and second-quarter levels. There has been some price stabilization on steel (even a few percentage-points rollback as new supply capacity becomes available at the mills).
  • If the Democrats take over either the House or Senate, the outlook will change for the worse. No doubt about it.
  • Metal lead times and pricing remain at increased levels.

Machinery Manufacturing

  • We are experiencing a lull in business activity compared with recent months. However, we also believe that this situation will be temporary, as all other signs in our industry remain strong. We remain cautiously optimistic.
  • Of course, steel tariffs are hurting us, but we’ve seen this before. Big companies get protection, while little companies pay the price. We saw two months (July/August) with an uptick of about 8 percent in sales, but it looks like September and October will drop back down.
  • Third-quarter sales are generally the slowest annually because of vacations by our customers. However, we already see the pickup in orders for year-end completion of projects and money that needs to be spent. Our sales have already exceeded all of 2017, and we are forecasting a 45 percent increase. We are looking forward to 2019 already since our customers are telling us to get ready for another strong year of business. I believe that many of our competitors are seeing the same outlook.

Electrical Equipment, Appliance, and Component Manufacturing

  • Construction is strong coast to coast, which is driving sales of our products. Finding blue-collar labor is tough, especially since we drug test for safety in our plants. Many applicants either walk away from or fail drug tests. Some are amazed we fail them for pot. Random tests in the office have also resulted in dismissal of a couple of people. America has a problem!

Transportation Equipment Manufacturing

  • Our business has been very consistent this year, which is good. The constant price increases from our suppliers are definitely decreasing our profits. Our market will not permit us to raise our prices to the point of matching the increases.
  • Our volume outlook has improved due to adding a new production model.

Paper Manufacturing

  • It is getting worse every month trying to find employees.

Printing and Related Support Activities

  • These are still very challenging times—nothing like the fun months during 2005 through 2009. There is way too much uncertainty in Washington with our unpredictable leader. However, the economy seems to be better and hopefully this will continue. We source a lot of materials from non-U.S. suppliers, and those are starting to be a problem. We don’t have domestic options on some of these, so between tariffs and longer lead times, it can be a real challenge.

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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