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Texas Manufacturing Outlook Survey

Report in PDF

October 29, 2018

Texas Manufacturing Continues to Expand, but Pace Slows

What’s New This Month

For this month’s survey, Texas business executives were asked supplemental questions on credit availability and borrowing conditions. 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 October, albeit at a slower pace, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, was positive but declined another six points to 17.6, indicating output growth continued to abate.

Some other indexes of manufacturing activity also suggested slower expansion in October. The capacity utilization index retreated six points to 15.4, while the shipments index fell four points to 16.6. Meanwhile, the new orders index rose—pushing up four points to 18.9—and the growth rate of orders index held steady at 11.0.

Perceptions of broader business conditions improved this month. The general business activity index inched up to 29.4, and the company outlook index climbed seven points to 25.0. Fewer than 3 percent of firms noted that their outlook worsened, the lowest share since 2004. The index measuring uncertainty regarding companies’ outlooks retreated 13 points to 6.9.

Labor market measures suggested rising employment levels and longer workweeks in October. The employment index rose six points to 23.9, a level well above average. Twenty-eight percent of firms noted net hiring, compared with 4 percent noting net layoffs. The hours worked index remained positive but moved down to 6.5.

Price increases accelerated further in October, and wage pressures remained elevated. The raw materials prices index posted a 10-point increase to 54.4, reaching its highest level in seven years. The finished goods prices index also increased, rising four points to 17.5. Compensation costs continued to rise at a faster clip than normal, with the wages and benefits index relatively unchanged at 32.9.

Expectations regarding future business conditions remained positive in October. The indexes of future general business activity and future company outlook remained well above average and came in at 35.6 and 37.3, respectively. Other indexes for future manufacturing activity showed mixed movements this month but remained solidly in positive territory.

Next release: Monday, November 26

Data were collected Oct. 16–24, and 118 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.

October 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)
IndicatorOct IndexSep IndexChangeIndicator Direction*Trend** (Months)% Reporting Increase% Reporting
No Change
% Reporting Decrease

Production

17.6

23.3

–5.7

Increasing

28

31.9

53.8

14.3

Capacity Utilization

15.4

21.6

–6.2

Increasing

28

26.5

62.4

11.1

New Orders

18.9

14.7

+4.2

Increasing

24

35.8

47.3

16.9

Growth Rate of Orders

11.0

11.5

–0.5

Increasing

22

25.1

60.8

14.1

Unfilled Orders

5.9

1.8

+4.1

Increasing

19

18.0

69.9

12.1

Shipments

16.6

20.8

–4.2

Increasing

23

31.3

54.0

14.7

Delivery Time

7.5

4.1

+3.4

Increasing

16

16.6

74.3

9.1

Finished Goods Inventories

2.6

6.0

–3.4

Increasing

3

19.7

63.2

17.1

Prices Paid for Raw Materials

54.4

44.4

+10.0

Increasing

32

54.7

45.0

0.3

Prices Received for Finished Goods

17.5

13.6

+3.9

Increasing

27

19.8

77.9

2.3

Wages and Benefits

32.9

33.0

–0.1

Increasing

111

33.4

66.1

0.5

Employment

23.9

17.7

+6.2

Increasing

22

27.6

68.7

3.7

Hours Worked

6.5

12.7

–6.2

Increasing

24

15.5

75.5

9.0

Capital Expenditures

24.5

17.0

+7.5

Increasing

26

28.5

67.5

4.0

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

Company Outlook

25.0

18.2

+6.8

Improving

26

27.5

70.0

2.5

General Business Activity

29.4

28.1

+1.3

Improving

24

31.0

67.4

1.6

IndicatorOct IndexSep IndexChangeIndicator Direction*Trend** (Months)% Reporting Increase% Reporting
No Change
% Reporting Decrease

Outlook Uncertainty†

6.9

19.9

–13.0

Increasing

5

22.6

61.7

15.7

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

Production

47.9

43.7

+4.2

Increasing

116

54.7

38.5

6.8

Capacity Utilization

38.9

41.0

–2.1

Increasing

116

45.7

47.5

6.8

New Orders

46.1

44.9

+1.2

Increasing

116

51.5

43.1

5.4

Growth Rate of Orders

36.5

37.2

–0.7

Increasing

116

40.8

54.9

4.3

Unfilled Orders

11.3

12.7

–1.4

Increasing

37

19.9

71.5

8.6

Shipments

51.7

42.2

+9.5

Increasing

116

56.8

38.1

5.1

Delivery Time

9.8

5.7

+4.1

Increasing

23

15.4

79.0

5.6

Finished Goods Inventories

11.3

10.3

+1.0

Increasing

12

22.6

66.0

11.3

Prices Paid for Raw Materials

42.1

43.0

–0.9

Increasing

115

47.7

46.7

5.6

Prices Received for Finished Goods

27.1

28.0

–0.9

Increasing

33

33.6

59.8

6.5

Wages and Benefits

51.4

57.4

–6.0

Increasing

173

51.4

48.6

0.0

Employment

32.8

39.4

–6.6

Increasing

71

39.0

54.8

6.2

Hours Worked

14.3

11.4

+2.9

Increasing

29

17.7

78.9

3.4

Capital Expenditures

28.0

37.8

–9.8

Increasing

107

33.9

60.2

5.9

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

Company Outlook

37.3

33.8

+3.5

Improving

33

42.2

52.9

4.9

General Business Activity

35.6

38.0

–2.4

Improving

29

40.4

54.8

4.8

*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.

October 29, 2018

Production Index

Downloadable chart

October 29, 2018

Comments from Survey Respondents

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

Chemical Manufacturing

  • The availability of skilled workers will limit growth.

Nonmetallic Mineral Product Manufacturing     

  • China tariffs at 25 percent could be a problem. Many manufacturers are increasing their selling prices to homebuilders. This will cause further increases in the selling pricing of new homes.

Primary Metal Manufacturing

  • Tariffs need to be resolved.
  • We have experienced a lull in activity from all sectors. This is typical during every election cycle, as major customers look for clarity on changes that may impact the overall business climate. We continue to work toward a request with the Department of Labor to revisit the silica rule, as numerous businesses are quickly determining that variable conditions make testing for and compliance with the silica standard almost impossible. Hopefully, we finally see a confirmation of the OSHA [Occupational Safety and Health Administration] administrator within the next few months.
  • The volume of shipments will decrease this month due to the rain continuing. Order volume may decrease but will remain good and strong. We are past the frantic mode for orders.

Fabricated Metal Product Manufacturing

  • We might see some softening in 2019.
  • Being in manufacturing and housing, we are seeing pressures on multiple fronts. Interest rates are starting to cause hesitation in the new construction and remodeling projects. Tariffs are increasing material costs in metals as one would expect. Wages and benefits are increasing every day as the ability to find good employees is near impossible. Training costs are increasing as turnover is very high (employees jumping from employer to employer, gaining wage increases). The vast amounts of rain in Texas has also proved to be a substantial cause for what I would consider a downturn in housing.
  • Our business backlog decreased slightly, mainly due to foreign competition (Turkey). Domestic steel prices are still increasing on a quarterly basis. There are longer lead times for ordering from steel mills.
  • Tariffs are still a factor when every job requires purchasing such material. Some customers understand, others are just deciding to get it elsewhere when we ask for money to cover the increased cost.
  • Tariffs on imports will be impacting our business.
  • Competition for projects is starting to intensify. This is a strong indication that our competitors are slowing down and are not getting the volume of work that we currently have. This also indicates that the large companies are having fewer projects being bid for construction. This could be temporary, but from my experience, it is never a very good situation in the short term for future business activity.

Machinery Manufacturing

  • Tariffs distort the free market. Interest rates are prices which should be controlled by the market, not the Federal Reserve. Central planning is never good. Allow the free market to make America great.
  • After a lull in business last month, we are now experiencing a strong new surge of business. We now think the year will end strong.

Computer and Electronic Product Manufacturing

  • A broad slowdown across industrial and automotive markets began in the third quarter, and the outlook for the fourth quarter is much lower than the normal seasonal decline.

Transportation Equipment Manufacturing

  • We have a significant amount of concern regarding the impact of tariffs on raw material pricing. Our primary customer is the U.S. government, and we’re subject to “buy American” provisions. Increased tariffs have the intended effect of increasing demand for domestic goods; consequently, as supply is absorbed, prices will increase.
  • Since we operate predominantly in the municipal space, we are seeing the positive effects of the broader economic recovery and expansion. Our guess is for at least another 18–24 months of rapid growth. We are hopeful that there are no policy changes that would tend to stifle this.
  • We are forced to reduce prices to compete with Chinese knockoffs. Margins will suffer.
  • On Nov. 6, if it’s a Democrat win, it will reduce our forecasts; if it’s a Republican win, our forecasts will remain the same.

Food Manufacturing

  • New tariffs on materials coming from China will start making an impact in November, increasing the prime costs of our products.

Textile Product Mills

  • We are very fortunate to have a substantial increase in orders and customers. The fact that we make custom products and our turnaround time is short is a main reason for this increase. We are bursting at the seams in our location, but prices have increased so much in the area that we will have to make it work as we cannot afford to move.

Wood Product Manufacturing

  • Rain slows construction activity.
  • Housing is slowing down.

Furniture and Related Product Manufacturing

  • Our indicators are heavily influenced by the amount of debt that private equity and venture capital firms have incurred after the acquisition of specialty retail.

Printing and Related Support Activities

  • We are very worried that while we are busy now, which is normal, we are not seeing the volume of large orders that can help sustain us through the lean winter months. Plus, we continue to deal with deadbeat customers who used to be creditworthy and now can’t rub two nickels together, it seems. We are tempted to go to an all-cash-on-delivery basis except for the really large customers.

Miscellaneous Manufacturing

  • We are struggling with an inability to keep pricing to customers high enough to cover the rising cost of raw material due to tariffs and low scrap-metal pricing, rising wages and other overhead. This has been a year where we’ve seen continued volume increases but profits are falling. The uncertainty that the trade wars bring have us tightening our capital spending and other spending to bare minimum.

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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