Texas Economy

Texas Manufacturing Outlook Survey

February 25, 2019

Texas Manufacturing Expansion Continues

What’s New This Month

For this month’s survey, Texas business executives were asked supplemental questions on employment expectations, the labor market and business activity. 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 February, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, slipped four points to 10.1, indicating a slight deceleration in output growth.

Most other measures of manufacturing activity also suggested continued but slower expansion in February. The new orders index fell five points to 6.9, its lowest reading in more than two years. Similarly, the capacity utilization index fell eight points to 7.1 and reached a two-year low. Meanwhile, the shipments index was largely unchanged at 10.7.

Perceptions of broader business conditions improved notably in February. The general business activity index rose 12 points to 13.1 after posting weak readings the prior two months. The company outlook index rose seven points to 14.2, a four-month high. The index measuring uncertainty regarding companies’ outlooks retreated 12 points to 4.1, its lowest reading in nine months.

Labor market measures suggested stronger employment growth and little change in workweek length in February. The employment index rebounded from 6.6 to 12.6. Twenty-two percent of firms noted net hiring, compared with 9 percent noting net layoffs. The hours worked index came in at 1.8.

Upward pressure on prices and wages continued in February. The raw materials and finished goods prices indexes held steady at 21.8 and 5.2, respectively, roughly in line with average levels for these indexes. The wages and benefits index remained quite elevated at 28.9.

Expectations regarding future business conditions remained positive in February. The indexes of future general business activity and future company outlook rose to 17.7 and 26.7, respectively. Most other indexes for future manufacturing activity fell but remained solidly positive.

Next release: Monday, March 25

Data were collected Feb. 12–20, and 123 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.

February 25, 2019

Results Summary

Business Indicators Relating to Facilities and Products in Texas Current (versus previous month)
Indicator	Feb Index	Jan Index	Change	Indicator Direction*	Trend** (Months)	% Reporting Increase	% Reporting No Change	% Reporting Decrease
Production	10.1	14.5	–4.4	Increasing	32	30.1	50.0	20.0
Capacity Utilization	7.1	14.8	–7.7	Increasing	32	28.7	49.7	21.6
New Orders	6.9	11.6	–4.7	Increasing	28	31.9	43.0	25.0
Growth Rate of Orders	3.4	1.2	+2.2	Increasing	26	24.9	53.6	21.5
Unfilled Orders	0.7	0.2	+0.5	Increasing	2	17.7	65.3	17.0
Shipments	10.7	11.4	–0.7	Increasing	27	32.7	45.4	22.0
Delivery Time	–1.3	–2.3	+1.0	Decreasing	3	12.2	74.3	13.5
Finished Goods Inventories	–2.5	5.4	–7.9	Decreasing	1	15.0	67.5	17.5
Prices Paid for Raw Materials	21.8	21.2	+0.6	Increasing	36	29.0	63.8	7.2
Prices Received for Finished Goods	5.2	6.4	–1.2	Increasing	31	14.3	76.6	9.1
Wages and Benefits	28.9	27.4	+1.5	Increasing	115	30.1	68.7	1.2
Employment	12.6	6.6	+6.0	Increasing	26	21.8	69.0	9.2
Hours Worked	1.8	3.6	–1.8	Increasing	28	15.8	70.2	14.0
Capital Expenditures	18.7	16.0	+2.7	Increasing	30	27.2	64.3	8.5

General Business Conditions Current (versus previous month)
Indicator	Feb Index	Jan Index	Change	Indicator Direction*	Trend** (Months)	% Reporting Improved	% Reporting No Change	% Reporting Worsened
Company Outlook	14.2	7.1	+7.1	Improving	2	25.2	63.8	11.0
General Business Activity	13.1	1.0	+12.1	Improving	2	24.9	63.3	11.8


Indicator	Feb Index	Jan Index	Change	Indicator Direction*	Trend** (Months)	% Reporting Increase	% Reporting No Change	% Reporting Decrease
Outlook Uncertainty†	4.1	15.6	–11.5	Increasing	9	17.2	69.7	13.1

Business Indicators Relating to Facilities and Products in Texas Future (six months ahead)
Indicator	Feb Index	Jan Index	Change	Indicator Direction	Trend* (Months)	% Reporting Increase	% Reporting No Change	% Reporting Decrease
Production	44.3	53.4	–9.1	Increasing	120	50.9	42.5	6.6
Capacity Utilization	40.1	48.2	–8.1	Increasing	120	48.9	42.3	8.8
New Orders	44.9	44.7	+0.2	Increasing	120	51.2	42.5	6.3
Growth Rate of Orders	30.8	38.5	–7.7	Increasing	120	37.6	55.6	6.8
Unfilled Orders	10.8	5.5	+5.3	Increasing	41	21.6	67.6	10.8
Shipments	44.7	43.7	+1.0	Increasing	120	51.2	42.3	6.5
Delivery Time	8.7	4.0	+4.7	Increasing	27	17.2	74.3	8.5
Finished Goods Inventories	5.4	8.6	–3.2	Increasing	16	20.4	64.6	15.0
Prices Paid for Raw Materials	23.7	31.8	–8.1	Increasing	119	32.5	58.8	8.8
Prices Received for Finished Goods	25.9	26.7	–0.8	Increasing	37	32.8	60.3	6.9
Wages and Benefits	47.0	47.7	–0.7	Increasing	177	48.0	51.0	1.0
Employment	33.2	39.4	–6.2	Increasing	75	38.4	56.4	5.2
Hours Worked	11.4	15.6	–4.2	Increasing	33	18.3	74.8	6.9
Capital Expenditures	24.0	34.2	–10.2	Increasing	111	34.6	54.8	10.6

General Business Conditions Future (six months ahead)
Indicator	Feb Index	Jan Index	Change	Indicator Direction*	Trend** (Months)	% Reporting Increase	% Reporting No Change	% Reporting Worsened
Company Outlook	26.7	22.3	+4.4	Improving	37	34.6	57.5	7.9
General Business Activity	17.7	11.7	+6.0	Improving	33	28.9	59.9	11.2

*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 2019.

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.

February 25, 2019

Production Index

February 25, 2019

Comments from Survey Respondents

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

Primary Metal Manufacturing

Our volume of shipments has decreased due to weather and a short shipping month in February. We thought after all the rain the past few months, shipments would increase in February, but they have not. The backlog remains, but few are taking deliveries.

Fabricated Metal Product Manufacturing

We experienced a slight downturn in February incoming orders after a very strong January.
We see a lack of demand at point of sale, but general business interest remains strong.
January was slow with minimal inquires, but February has greatly improved with customer requests for proposals.

Chemical Manufacturing

We have been raising inventories after a drawdown at the end of the year. Once we get to target levels, production will be curtailed.
We feel the petrochemical business in the U.S. will remain strong, as it has for several years now. The largest risk seems to be the Chinese economy and the trade war with the U.S. The longer it continues, the greater the risk to the world economy, which would not immediately but ultimately affect the U.S. economy.
A major customer serving the trucking industry pushed back orders by two weeks based on slowing production at their plant. Across all customer segments, activity has been very quiet in the past few weeks.
Trying to deal with backlog and meet delivery dates has now become a challenge.

Machinery Manufacturing

We are receiving larger orders and from new customers. Our competitors have stopped doing service work for our customers, and we picked up all of that business. This will increase our business in unintended ways for years to come. Their explanation was that their employees no longer wanted to travel, and the risk of all the driving was too great. As for capital expenditures, we are reducing them for 2019 and reducing our inventory substantially. I believe that cash in the bank will serve us much better.
Tariffs distort a free market. It’s just another example of central planning picking winners and losers.
We’ve had a solid start to the new year, and if Chinese trade negotiations go well and an agreement is reached in March, we think the economy will take off again.
Though we have seen an improvement in our business, we are still wary of the future. Our major customers have not generated much new business and are still simply maintaining their current equipment.
We are hurting bad; we need work.

Computer and Electronic Product Manufacturing

We are clearly seeing signs that trade tensions are impacting business.
A firm U.S. budget greatly reduces our uncertainty for a large portion of the remaining year.
The U.S. needs fair/free trade with South America.

Electrical Equipment, Appliance and Component Manufacturing

We obtained an hourly pay survey and raised starting hourly pay at least 15 percent. We are getting more and better applicants. Lack of workers held back sales in 2017. We are addressing pay to get more help and reduce turnover. We are also implementing new procedures on the shop floor to increase productivity. Our construction end markets are doing very well, and our competitors are struggling and we plan to do better in 2019 coming off a very good 2018.

Transportation Equipment Manufacturing

Right now, the general business level appears favorable. There are definitely some concerns going forward that next year's elections may carry with them an antibusiness bias, or that, more immediately, the proposed Green New Deal will have a chilling effect on business development. We already have to pay competitive wages and offer extremely competitive benefits to even attract decent new hires. Adding layers of arbitrary, bureaucratic complexity does not help me do better for my personnel. It takes money that I can spend on wage increases or improved benefits offerings and applies it to vague and nebulous departments into which money disappears in the name of “progress.”

Furniture and Related Product Manufacturing

We are seeing an unusually significant slowdown in February compared to typical seasonal trends. We had a very robust end of fourth quarter 2018 and, by late January and into February, we have seen a dramatic slowdown. We supply building materials to multifamily builders and, so far, we have not identified whether this is an overall trend or a dramatic blip on the screen.

Printing and Related Support Activities

We are in the dreaded Winter Blues as far as slow activity. However, this year seems worse than prior winters, and we are 20 percent below incoming orders through four months of our current fiscal year as compared to last year at this time.

Food Manufacturing

There is a shortage of skilled labor.
Our outlook is improving due to lower-than-budgeted raw materials costs.

Textile Product Mills

Business is booming, and our customers are writing bigger orders for a broader product assortment.

Apparel Manufacturing

Our heavy apparel-sewing workload has stabilized at a very high level, so orders should be solid for the next 12 months.

Paper Manufacturing

Slowness is starting to drag on. At this point, we are concerned but not worried. “Worried” will be for next month.

Miscellaneous Manufacturing

No capital expenditures are planned for next five to seven years due to tightening credit, rising interest rates and volatility in the aluminum and steel markets.
The Chinese tariff situation will decide our success in 2019. My customers will not want to pay to support the president’s incoming charges.

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.