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Texas Manufacturing Outlook Survey

Report in PDF

December 31, 2018

Texas Manufacturing Expands Modestly, Outlook Worsens

What’s New This Month

For this month’s survey, Texas business executives were asked supplemental questions on wages and prices. 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 rather modestly in December, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, inched down one point to 7.3.

Other indexes of manufacturing activity also suggested modest growth in December, although demand growth picked up a bit. The capacity utilization index fell from 9.4 to 7.6, and the shipments index dipped to 6.1. Meanwhile, the new orders index moved up five points to 14.4, and the growth rate of new orders index edged up to 5.8.

Perceptions of broader business conditions turned slightly negative in December. The general business activity index plummeted 23 points to -5.1, hitting its lowest level since mid-2016. The company outlook index also fell markedly, dropping 17 points to -3.4, also a two-and-a-half-year low. More than 20 percent of manufacturers noted their outlook worsened this month.

Labor market measures suggested continued but slightly slower employment growth and longer workweeks in December. The employment index retreated five points to 11.0, a level still above average. Twenty-two percent of firms noted net hiring, compared with 11 percent noting net layoffs. The hours worked index held steady at 5.0.

Price increases eased further in December, while wage growth picked up slightly. The raw materials prices index slipped five points to 28.8, and the finished goods prices index ticked down one point to 6.6. Both came in near their average levels. Meanwhile, compensation costs continued to rise at a faster clip than normal. The wages and benefits index moved up four points to 29.2, with nearly 30 percent of firms noting an increase from November.

Expectations regarding future business conditions remained positive but retreated notably in December. The indexes of future general business activity and future company outlook fell 23 points to 3.2 and 8.8, respectively. Most other indexes for future manufacturing activity also posted double-digit declines this month but remained solidly in positive territory.

Next release: Monday, January 28

Data were collected Dec. 18–26, and 112 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.

December 31, 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)
Indicator Dec Index Nov Index Change Indicator Direction* Trend** (Months) % Reporting Increase % Reporting
No Change
% Reporting Decrease

Production

7.3

8.4

–1.1

Increasing

30

24.6

58.1

17.3

Capacity Utilization

7.6

9.4

–1.8

Increasing

30

20.9

65.8

13.3

New Orders

14.4

9.7

+4.7

Increasing

26

34.1

46.2

19.7

Growth Rate of Orders

5.8

4.8

+1.0

Increasing

24

23.5

58.8

17.7

Unfilled Orders

–2.3

4.5

–6.8

Decreasing

1

15.1

67.5

17.4

Shipments

6.1

7.7

–1.6

Increasing

25

27.0

52.1

20.9

Delivery Time

–3.2

1.8

–5.0

Decreasing

1

8.6

79.6

11.8

Finished Goods Inventories

1.9

2.6

–0.7

Increasing

5

16.4

69.1

14.5

Prices Paid for Raw Materials

28.8

33.7

–4.9

Increasing

34

36.6

55.6

7.8

Prices Received for Finished Goods

6.6

7.5

–0.9

Increasing

29

16.5

73.6

9.9

Wages and Benefits

29.2

24.9

+4.3

Increasing

113

29.2

70.8

0.0

Employment

11.0

15.9

–4.9

Increasing

24

21.7

67.6

10.7

Hours Worked

5.0

4.9

+0.1

Increasing

26

14.1

76.8

9.1

Capital Expenditures

14.2

9.2

+5.0

Increasing

28

23.9

66.4

9.7

General Business Conditions
Current (versus previous month)
Indicator Dec Index Nov Index Change Indicator Direction* Trend** (Months) % Reporting Improved % Reporting
No Change
% Reporting Worsened

Company Outlook

–3.4

13.7

–17.1

Worsening

1

17.9

60.8

21.3

General Business Activity

–5.1

17.6

–22.7

Worsening

1

17.0

60.9

22.1

Indicator Dec Index Nov Index Change Indicator Direction* Trend** (Months) % Reporting Increase % Reporting
No Change
% Reporting Decrease

Outlook Uncertainty†

9.2

12.3

–3.1

Increasing

7

23.9

61.5

14.7

Business Indicators Relating to Facilities and Products in Texas
Future (six months ahead)
Indicator Dec Index Nov Index Change Indicator Direction Trend* (Months) % Reporting Increase % Reporting
No Change
% Reporting Decrease

Production

32.7

52.9

–20.2

Increasing

118

48.4

35.8

15.7

Capacity Utilization

30.5

43.4

–12.9

Increasing

118

43.6

43.2

13.1

New Orders

32.4

47.8

–15.4

Increasing

118

47.5

37.4

15.1

Growth Rate of Orders

23.1

32.1

–9.0

Increasing

118

37.7

47.7

14.6

Unfilled Orders

1.4

6.9

–5.5

Increasing

39

12.9

75.6

11.5

Shipments

32.4

46.4

–14.0

Increasing

118

45.5

41.4

13.1

Delivery Time

8.9

1.7

+7.2

Increasing

25

17.2

74.5

8.3

Finished Goods Inventories

2.0

3.8

–1.8

Increasing

14

21.6

58.8

19.6

Prices Paid for Raw Materials

34.3

36.2

–1.9

Increasing

117

41.0

52.4

6.7

Prices Received for Finished Goods

26.7

29.2

–2.5

Increasing

35

36.2

54.3

9.5

Wages and Benefits

45.0

44.8

+0.2

Increasing

175

47.0

51.0

2.0

Employment

28.2

42.0

–13.8

Increasing

73

36.9

54.4

8.7

Hours Worked

10.8

9.3

+1.5

Increasing

31

18.5

73.8

7.7

Capital Expenditures

24.7

34.1

–9.4

Increasing

109

37.0

50.7

12.3

General Business Conditions
Future (six months ahead)
Indicator Dec Index Nov Index Change Indicator Direction* Trend** (Months) % Reporting Increase % Reporting
No Change
% Reporting Worsened

Company Outlook

8.8

31.4

–22.6

Improving

35

27.6

53.6

18.8

General Business Activity

3.2

25.7

–22.5

Improving

31

26.7

49.7

23.5

*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.

December 31, 2018

Production Index

Downloadable chart

December 31, 2018

Comments from Survey Respondents

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

Nonmetallic Mineral Product Manufacturing     

  • One month does not make a trend; if weakness continues through the winter, we will need to lower production rates.

Primary Metal Manufacturing

  • Interest rate increases are the main potential problem to continued good times.
  • Volatility in the energy sector has shown a decrease in demand across the board from almost every major sector. Additional speculation on 2019 growth from other sectors including mining, waterworks and infrastructure has resulted in a pause in orders from these sectors.

Fabricated Metal Product Manufacturing

  • Housing is definitely seeing an impact from various variables such as interest rates, tariffs and a tight labor market in construction. Beginning in October of 2018, we had seen a dramatic shift down in sales of windows and doors for the residential market. The decrease seems to be broad based across our customers.
  • Foreign competitors continue to have a large price advantage over domestic suppliers of steel utility structures. Turkey and India continue to deliver finished steel structures to the U.S., unaffected by the steel tariffs. U.S. steel mills continued to increase raw steel prices in November/December, causing our costs to rise even higher.
  • Declining oil prices are a concern going into the first quarter of 2019.
  • It seems there is a slowdown, mainly due to commodity price decreases and capital expenditure reductions for 2019 in the energy sector.

Machinery Manufacturing

  • This is a hard market to read, as one month, activity slows down, and then the next month, it accelerates; however, we now appear to be on a positive trend.
  • We live and die by the price of oil. With the oilfield down, we see less orders.

Computer and Electronic Product Manufacturing

  • New orders are robust, but our lead times are two to three times normal levels due to industrywide external supply-chain constraints.
  • A slowdown in manufacturing is worrying our company and our customers.

Electrical Equipment, Appliance and Component Manufacturing

  • Construction nationally looks very healthy. Commercial and industrial building and remodeling are strong. Housing is good. Good is better than great because after great, it usually gets horrible.

Transportation Equipment Manufacturing

  • Incoming orders have dropped off 50 percent total over past four months.
  • The Federal Reserve got it wrong when it kept interest rates artificially low for years and is getting it wrong now by artificially rapidly raising rates.
  • We remain cautiously optimistic about continued business activity, but there are some macro trends we are seeing and reading about that create some concern that there may be a leveling off over the coming months.
  • We are a defense contractor. The lack of decisive direction-setting on the part of the federal government continues to create an element of uncertainty in our planning processes.

Printing and Related Support Activities

  • Political uncertainty and volatile markets make for a lousy investment climate. Major capital projects will be put on hold for a while until I see what is happening.
  • We have gotten slow for unknown reasons, really. Normally, we would be busy well into early to mid-January, but this year, the slowdown occurred in early December. Because of this, we predict that six months from now, it will have to be busier. If anything, we have slightly less competition, and we haven’t run off any customers that we know of. It’s hard to know for sure. We are looking into acquiring a piece of equipment to allow us to provide a service we currently have to buy outside. If so, that will give capital expenditures a boost.

Food Manufacturing

  • We continue to be challenged by a lack of skilled and unskilled labor. Rising interest rates and food inflation are concerning us.

Wood Product Manufacturing

  • The housing market is slowing.

Miscellaneous Manufacturing

  • We are experiencing rising expenses throughout the supply chain. We have been able to raise prices to customers but can’t find where the market truly is in terms of competitive pricing at this time. We don’t know how many customers we may end up losing as a result of price increases. Because of the tariffs, the aluminum and steel pricing is continuing to increase, and mills domestic and abroad are at capacity, so supply disruption is occurring. To add to rising costs, metal scrap-market values have been steadily decreasing, especially in aluminum. We face great uncertainty for the near future. The economic policies of President Trump are causing unnecessarily volatile pricing and unpredictable outcomes.

 

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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