Texas Economy

Texas Manufacturing Outlook Survey

February 24, 2020

Texas Manufacturing Expansion 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, Texas Service Sector Outlook Survey and Texas Retail Outlook Survey have been released together. Read the special questions results.

Growth in Texas factory activity accelerated further in February, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose six points to 16.4, suggesting stronger output growth than last month.

Other measures of manufacturing activity pointed to continued expansion in February, though demand growth decelerated. The new orders index fell nine points to 8.4, down from a 15-month high in January but still slightly above average. Similarly, the growth rate of orders index fell but remained above average, edging down from 6.1 to 3.6. The capacity utilization and shipments indexes held steady at 11.3 and 8.5, respectively.

Perceptions of broader business conditions were slightly more optimistic in February. The general business activity index edged up to 1.2 and the company outlook index ticked up to 3.6, though both readings remain slightly below average. The index measuring uncertainty regarding companies’ outlooks moved up eight points to 11.0 after receding in the prior two months.

Labor market measures suggested flat employment levels and slightly longer workweeks this month. The employment index stayed near zero for a second month in a row, coming in at -0.9. Fifteen percent of firms noted net hiring, while 16 percent noted net layoffs. The hours worked index moved up to 2.1.

Upward pressure on input prices and wages picked up in February, while selling prices remained flat. The raw materials prices index moved up three points to 12.8, a reading still well below average. The wages and benefits index rose from 16.3 to 22.6, reaching its highest level in six months. Meanwhile, the finished goods prices index hovered just above or below zero for the fourth month in a row, suggesting no meaningful change in selling prices.

Expectations regarding future business conditions were slightly more optimistic in February. The indexes of future general business activity and future company outlook moved up to 18.0 and 24.1, respectively. Most other indexes for future manufacturing activity declined slightly but remained solidly in positive territory.

Next release: Monday, March 30

Data were collected Feb. 11–19, 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.

February 24, 2020

Results Summary

Business Indicators Relating to Facilities and Products in Texas Current (versus previous month)
Indicator	Feb Index	Jan Index	Change	Series Average	Trend*	% Reporting Increase	% Reporting No Change	% Reporting Decrease
Production	16.4	10.5	+5.9	10.5	3(+)	36.4	43.6	20.0
Capacity Utilization	11.3	11.5	–0.2	8.2	3(+)	31.1	49.1	19.8
New Orders	8.4	17.6	–9.2	6.5	3(+)	32.3	43.7	23.9
Growth Rate of Orders	3.6	6.1	–2.5	0.1	2(+)	22.7	58.2	19.1
Unfilled Orders	0.5	–3.6	+4.1	–2.9	1(+)	14.0	72.5	13.5
Shipments	8.5	8.6	–0.1	9.2	3(+)	30.0	48.4	21.5
Delivery Time	2.6	–3.0	+5.6	–0.5	1(+)	14.1	74.4	11.5
Finished Goods Inventories	–5.5	–3.5	–2.0	–3.1	11(–)	12.7	69.1	18.2
Prices Paid for Raw Materials	12.8	9.5	+3.3	24.6	47(+)	23.9	65.0	11.1
Prices Received for Finished Goods	–0.1	–1.9	+1.8	6.4	2(–)	11.8	76.3	11.9
Wages and Benefits	22.6	16.3	+6.3	18.8	127(+)	25.6	71.4	3.0
Employment	–0.9	1.9	–2.8	6.5	1(–)	14.8	69.5	15.7
Hours Worked	2.1	–0.2	+2.3	2.8	1(+)	19.8	62.5	17.7
Capital Expenditures	6.9	9.1	–2.2	7.0	42(+)	20.9	65.1	14.0

General Business Conditions Current (versus previous month)
Indicator	Feb Index	Jan Index	Change	Series Average	Trend**	% Reporting Improved	% Reporting No Change	% Reporting Worsened
Company Outlook	3.6	1.9	+1.7	7.2	3(+)	20.7	62.2	17.1
General Business Activity	1.2	–0.2	+1.4	2.9	1(+)	18.8	63.6	17.6


Indicator	Feb Index	Jan Index	Change	Series Average	Trend*	% Reporting Increase	% Reporting No Change	% Reporting Decrease
Outlook Uncertainty†	11.0	2.7	+8.3	9.4	21(+)	22.9	65.1	11.9

Business Indicators Relating to Facilities and Products in Texas Future (six months ahead)
Indicator	Feb Index	Jan Index	Change	Series Average	Trend*	% Reporting Increase	% Reporting No Change	% Reporting Decrease
Production	35.0	38.9	–3.9	38.7	132(+)	45.0	45.0	10.0
Capacity Utilization	33.0	37.4	–4.4	35.5	132(+)	42.9	47.1	9.9
New Orders	34.1	40.1	–6.0	36.5	132(+)	43.3	47.4	9.2
Growth Rate of Orders	30.0	27.0	+3.0	26.9	132(+)	37.8	54.4	7.8
Unfilled Orders	5.4	8.3	–2.9	4.0	2(+)	13.2	79.0	7.8
Shipments	27.3	38.3	–11.0	37.4	132(+)	39.9	47.5	12.6
Delivery Time	8.7	5.8	+2.9	–1.8	5(+)	16.0	76.7	7.3
Finished Goods Inventories	16.8	0.9	+15.9	–0.4	3(+)	27.7	61.4	10.9
Prices Paid for Raw Materials	21.4	20.2	+1.2	33.7	131(+)	27.2	67.0	5.8
Prices Received for Finished Goods	11.6	10.0	+1.6	19.5	49(+)	19.4	72.8	7.8
Wages and Benefits	39.7	42.4	–2.7	38.3	189(+)	41.5	56.7	1.8
Employment	20.4	25.3	–4.9	22.3	87(+)	33.1	54.2	12.7
Hours Worked	12.2	14.2	–2.0	9.4	45(+)	21.0	70.2	8.8
Capital Expenditures	21.2	28.3	–7.1	20.2	123(+)	30.2	60.8	9.0

General Business Conditions Future (six months ahead)
Indicator	Feb Index	Jan Index	Change	Series Average	Trend**	% Reporting Increase	% Reporting No Change	% Reporting Worsened
Company Outlook	24.1	15.6	+8.5	21.1	49(+)	36.3	51.5	12.2
General Business Activity	18.0	7.6	+10.4	14.5	5(+)	32.1	53.8	14.1

*Shown is the number of consecutive months of expansion or contraction in the underlying indicator. Expansion is indicated by a positive index reading and denoted by a (+) in the table. Contraction is indicated by a negative index reading and denoted by a (–) in the table.

**Shown is the number of consecutive months of improvement or worsening in the underlying indicator. Improvement is indicated by a positive index reading and denoted by a (+) in the table. Worsening is indicated by a negative index reading and denoted by a (–) in the table.

†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.

February 24, 2020

Production Index

February 24, 2020

Comments from Survey Respondents

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

Chemical Manufacturing

There seemed to be an inventory buildup in the supply chain that one of our products sells into. That inventory is being worked down. Another product that sells into infrastructure building in emerging countries has picked up.

Nonmetallic Mineral Product Manufacturing

China factories are shut down due to coronavirus. If they stay closed for more than two to three more weeks, it will be a big problem as our “buffer” inventory of raw materials from China is depleted.

Fabricated Metal Manufacturing

We will feel the negative effect of the American Iron and Steel provision of the Clean Water and Drinking Water State Revolving Fund programs more since the waiver of stainless steel fasteners is not being renewed. The documentation requirement of this regulation adds extra layers of paperwork, tracking and cost to design, bidding, quotation, pricing and certification of material in all of the projects. Many projects are delayed, suffer design changes that cause lowered life expectancies and add significantly to the cost of all processes.

Machinery Manufacturing

Lower-priced similar items from China are killing our business. We manufacture hydraulic cylinders. There was a tariff on these types of goods coming from China, and it seems to have disappeared.
Business is starting off strong and steady this year, and we anticipate that it will continue to strengthen throughout the year.

Computer and Electronic Product Manufacturing

Coronavirus uncertainty has been introduced recently. It is impacting some of our customers with plants in China, which may disrupt future production schedules, dependent upon length of plant closures (commercial air and semiconductor manufacturers). We are seeing a mild impact on the supply chain out of China for some industrial components.
The coronavirus has introduced uncertainty, and we continue to monitor the impact closely. The biggest near-term threat looks to be to our supply chain, but certainly, a more significant impact to end demand has a real possibility of developing. Demand trends post-Chinese New Year look unaffected as of today. Broader signals have shown signs of stabilization in almost all our markets and geographies. Our current expectation is that year-over-year growth will resume as shipments of our customers more closely match end demand.
We are starting to see an impact in the supply chain from the coronavirus.

Transportation Equipment Manufacturing

We have budgeted for production volumes in 2020 to be flat with our rate of production in fourth quarter 2019. However, prices are increasing and we are aggressively negotiating with key vendors to lower material costs, so we anticipate higher sales and profits in 2020. Longer term, 2021 and beyond, our outlook is positive. Therefore, we are continuing to make capital investments to improve efficiencies and reduce the risk of failure of aging equipment.
The recreational vehicle slump is continuing and forecasted to last through 2020. While our volume is expected to increase, the product mix is shifting to lower-priced units.
We are losing staff to companies paying a lot more.

Food Manufacturing

The ill-advised effort and then failure to impeach Trump is a positive for business.

Textile Product Mills

The Chinese issues have slowed our imported inventory and increased the cost of goods. But overall, we are very optimistic, and our customer base is increasing while repeat orders are also increasing in frequency and value.

Paper Manufacturing

Activity has shown a small uptick from the third and fourth quarter of 2019. First quarter 2020 has some guarded optimism for what 2020 will bring.

Printing and Related Support Activities

We have managed to land one really large job that will keep us very busy in February and into March, typically slow months for us. In addition, we have a large amount of work coming in the March-through-May time frame that will also help with activity levels. Overall business seems to be better than we would expect for this time of year.

Miscellaneous Manufacturing

We are seeing a continued decrease in volumes from our automotive customers. We are working one shift only with no overtime.

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.