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Texas Manufacturing Outlook Survey

Report in PDF

May 26, 2020

Contraction Continues in Texas Manufacturing Sector, Though Severity Eases

What’s New This Month

For this month’s survey, Texas business executives were asked supplemental questions on the impacts of COVID-19 and reduced activity in the energy industry as a result of low oil 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.

This month’s data release also includes annual seasonal factor revisions. Once per year, the Federal Reserve Bank of Dallas revises the historical data for the Texas Manufacturing Outlook Survey after calculating new seasonal adjustment factors. Annual seasonal revisions result in slight changes in the seasonally adjusted series. Read more information on seasonal adjustment.

Texas factory activity declined again in May, though at a slower pace than in April, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, remained negative but improved from -55.6 to -28.0, suggesting the contraction in output has eased somewhat since last month.

Other measures of manufacturing activity pointed to a less-severe decline in May. The new orders index advanced 38 points to -30.6, its highest reading in three months, with more than 20 percent of manufacturers noting an increase in orders. Similarly, the growth rate of orders index pushed up more than 30 points to -30.8. The capacity utilization and shipments indexes also remained negative at -26.0 and -25.7, respectively, but were up from March and April.

Perceptions of broader business conditions remained negative but were somewhat less pessimistic in May. The general business activity index moved up from -74.0 to -49.2. Similarly, the company outlook index moved up nearly 30 points to -34.6, though only 12 percent of manufacturers noted improved outlooks. The index measuring uncertainty regarding companies’ outlooks retreated notably to 28.3, though the positive reading still indicates increased uncertainty.

Labor market measures indicated further employment declines and shorter workweeks this month. The employment index remained negative but rose from -22.0 to -11.5. Eight percent of firms noted net hiring, while 19 percent noted net layoffs. The hours worked index rose 18 points to -22.8, with the still-negative reading signaling reduced workweek length.

Prices and wages showed mixed movements in May. The raw materials prices index returned to positive territory after two negative readings, coming in at 2.5. The finished goods prices index, however, remained negative but moved up from -25.0 to -19.4. The wages and benefits index came in at zero—signaling no change in compensation costs this month—after dipping into negative territory in April for the first time since the Great Recession.

Expectations regarding future business conditions were mixed in May. The index of future general business activity remained negative but rose 24 points to -19.0. Most indexes for future manufacturing activity returned to positive territory, rebounding notably in May.

Next release: Monday, June 29

Data were collected May 12–20, and 115 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.

May 26, 2020

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 May Index Apr Index Change Series
Average
Trend* % Reporting Increase % Reporting No Change % Reporting Decrease

Production

–28.0

–55.6

+27.6

9.7

3(–)

17.5

36.9

45.5

Capacity Utilization

–26.0

–54.8

+28.8

7.4

3(–)

18.1

37.9

44.1

New Orders

–30.6

–68.7

+38.1

5.6

3(–)

21.1

27.2

51.7

Growth Rate of Orders

–30.8

–62.7

+31.9

–0.6

3(–)

17.7

33.8

48.5

Unfilled Orders

–17.4

–26.5

+9.1

–3.2

3(–)

15.3

52.0

32.7

Shipments

–25.7

–56.8

+31.1

8.4

3(–)

21.3

31.7

47.0

Delivery Time

–10.0

–14.6

+4.6

–0.6

3(–)

11.7

66.6

21.7

Finished Goods Inventories

–8.9

–8.8

–0.1

–3.2

14(–)

18.8

53.6

27.7

Prices Paid for Raw Materials

2.5

–21.1

+23.6

24.0

1(+)

14.3

73.9

11.8

Prices Received for Finished Goods

–19.4

–25.0

+5.6

6.0

5(–)

2.1

76.4

21.5

Wages and Benefits

–0.2

–3.4

+3.2

18.5

2(–)

12.1

75.6

12.3

Employment

–11.5

–22.0

+10.5

6.1

4(–)

7.7

73.1

19.2

Hours Worked

–22.8

–40.5

+17.7

2.3

3(–)

10.2

56.8

33.0

Capital Expenditures

–33.9

–55.0

+21.1

6.3

3(–)

5.2

55.7

39.1

General Business Conditions
Current (versus previous month)
Indicator May Index Apr Index Change Series
Average
Trend** % Reporting Improved % Reporting No Change % Reporting Worsened

Company Outlook

–34.6

–63.4

+28.8

6.2

3(–)

11.6

42.2

46.2

General Business Activity

–49.2

–74.0

+24.8

1.8

3(–)

7.4

36.0

56.6


Indicator May Index Apr Index Change Series
Average
Trend* % Reporting Increase % Reporting No Change % Reporting Decrease

Outlook Uncertainty†

28.3

54.4

–26.1

13.5

24(+)

44.2

39.8

15.9

Business Indicators Relating to Facilities and Products in Texas
Future (six months ahead)
Indicator May Index Apr Index Change Series
Average
Trend* % Reporting Increase % Reporting No Change % Reporting Decrease

Production

29.7

–13.2

+42.9

38.0

1(+)

49.7

30.3

20.0

Capacity Utilization

28.1

–14.2

+42.3

34.9

1(+)

47.5

33.2

19.4

New Orders

17.8

–13.7

+31.5

35.8

1(+)

44.7

28.4

26.9

Growth Rate of Orders

13.0

–16.1

+29.1

26.3

1(+)

38.9

35.3

25.9

Unfilled Orders

–4.3

–19.4

+15.1

3.7

3(–)

18.6

58.5

22.9

Shipments

13.4

–9.0

+22.4

36.7

1(+)

42.8

27.8

29.4

Delivery Time

–1.9

–16.7

+14.8

–1.8

3(–)

12.9

72.3

14.8

Finished Goods Inventories

–7.7

–15.9

+8.2

–0.5

3(–)

14.4

63.5

22.1

Prices Paid for Raw Materials

21.9

4.6

+17.3

33.3

2(+)

29.5

62.9

7.6

Prices Received for Finished Goods

4.8

–15.9

+20.7

19.1

1(+)

20.0

64.8

15.2

Wages and Benefits

12.7

–1.1

+13.8

37.7

1(+)

24.5

63.7

11.8

Employment

–3.5

–7.9

+4.4

21.7

3(–)

24.3

47.8

27.8

Hours Worked

7.8

–10.6

+18.4

9.2

1(+)

24.5

58.8

16.7

Capital Expenditures

–7.7

–20.6

+12.9

19.6

3(–)

21.1

50.1

28.8

General Business Conditions
Future (six months ahead)
Indicator May Index Apr Index Change Series
Average
Trend** % Reporting Increase % Reporting No Change % Reporting Worsened

Company Outlook

–11.2

–42.0

+30.8

20.2

3(–)

26.4

35.9

37.6

General Business Activity

–19.0

–43.0

+24.0

13.7

3(–)

23.6

33.8

42.6

*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.

May 26, 2020

Production Index

Downloadable chart

May 26, 2020

Comments from Survey Respondents

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

Chemical Manufacturing

  • We are operating at minimum rates due to demand conditions.
  • We are seeing slowing across all biotechnology sectors as companies shift production plans away from COVID-19 supplies and are very uncertain about starting any new projects. I am also becoming concerned with deflation as we are passing price concessions made to customers to willing vendors.

Plastics and Rubber Product Manufacturing

  • We continue to receive requests from customers for a substantial price reduction of 25 percent on average. Fortunately, we’ve been able to work with our customers and supply a smaller reduction of 10 percent on average.

Nonmetallic Mineral Product Manufacturing

  • Again, it is very difficult to complete this survey due to so many unknowns, which also make it difficult to plan everything from inventory levels to staffing to capacity. Looking at only the past two weeks, incoming orders are unexpectedly strong. But in the building materials business, this could drop sharply and quickly as homebuilders complete homes that have been in process for the past two months and stop building spec homes.

Primary Metal Manufacturing

  • COVID-19 is behind the negative outlook.
  • We have experienced an unprecedented slowdown across all sectors. This is similar to the 1981, 2001 and 2008 downturns in many ways for manufacturing.

Fabricated Metal Manufacturing

  • My hope is that competitors don’t start cutting prices to get work. Lowering prices to get business is not the answer. The economy being shell-shocked by COVID-19 is the problem.
  • We really don’t know what it will look like in six months.
  • We still have a lot of requests for quotations out, but many of the projects have been put on hold or canceled.
  • The virus is affecting our getting new orders, and it is causing 75 percent of office employees to work out of their houses. The plant employees are working with distance, while wearing masks. Lunchrooms have been extended, moving tables and chairs to larger distances (6-12 feet).

Machinery Manufacturing

  • Business is still down about 40 to 50 percent; however, we are about to start producing a medical product with an end use related to COVID-19. This project will temporarily spike our business upward for the rest of the year.
  • The best thing I can say is that it’s worse for my competition. Business has plummeted and our backlog evaporated, but our spare parts business is making payroll. I guess that will have to do until we see oil recover over the next year.
  • After having a good first quarter, April cleared out the balance of orders received in months prior. During April, the amount of inquiries dropped dramatically and that drop has thus far continued into May. In other words, the phone has completely stopped ringing along with online inquiry activities. It's like business just collapsed, with no orders or inquiries coming in whatsoever. In my humble opinion, we are headed for an economic collapse due to this idiotic shutdown by medical edict. It’s an unmitigated colossal disaster.
  • With the market and oil in constant flux, we have no real ability to forecast the market other than to go conservative. We have made plans to anticipate a decrease in revenue year over year by 50 percent.
  • We are a long-cycle business and we are just now starting to see contracts/projects slip to the right, sometimes remaining within 2020 but also moving out to 2021.

Computer and Electronic Product Manufacturing

  • After over two months of order delays, the summer months will see a significant downturn, but order activity has been picking back up and production levels will see some improvement as a result this fall. Defense customers are hiring and now ordering frenetically to help offset the commercial air downturn and use up their allocated funding.
  • Cities and municipalities are part of our customer base. As their tax base declines, we expect a decrease in orders later this year or early 2021 as an impact due to shutdowns.
  • We have seen supply constraints caused by stay-at-home orders to varying degrees around the world drive near-term demand as customers have increased concern about availability. At the same time, demand has become uncertain, with markets like automotive clearly weakening as factory closings in March ripple through supply chains. Customer visibility remains very low and demand highly uncertain.
  • We have increased sales and production. However, we are at half of the volume from a year ago.
  • After adjustments made to the forecast in March, the forecast has not changed.
  • The continued uncertainty surrounding the economic implications of the COVID-19 response impairs vision for the future. As a contract manufacturer, we are in the middle. As such, we may not know the full impact of the downturn for a few months. May is extremely low, but we believe it is an anomaly. That said, the general level of business revenue for us after May is going to be down roughly 40 percent from what it was six months ago. It remains to be seen how our customers will respond, and what their inventory levels might be and their future needs for more product to be manufactured and the timing.

Transportation Equipment Manufacturing

  • Nothing but uncertainty hangs over the economy. It is hard to be optimistic about the outlook. The more things remain closed, the more the national debt will increase. The relief valve seems to be negative interest rates, which are poison to savers and seniors. Not good.

Food Manufacturing

  • We could sell all we could produce. Lead times are increasing, though suppliers are helping. We believe that the need for humanitarian food relief will continue to nearly year-end due to the nature of the pandemic and the economics of it as well as what may be a shallow upwardly inclined level of improvement rather than a spike.
  • Raw product prices have doubled in some cases. Retail price increases are not keeping up. There is a shortage of raw materials.
  • Our business continues to be good, with strong demand from retail and club grocery channels. Our biggest concern is the meat supply chain, which has been severely disrupted. Prices for our inputs have skyrocketed and are approximately 250 percent higher than the previous three-year average. This is causing us to increase our prices to our customers. While we believe that this is a short-term issue, the severity and speed of the increase forced us to make a quick decision to raise prices.
  • Food manufacturing remains very strong. We have had some supply chain issues but thankfully not enough to really affect our overall business. What has been surprising is the lack of applicants looking for work. We are looking to increase hiring by 10 percent but have had difficulty finding people.

Beverage and Tobacco Product Manufacturing

  • My uncertainty month to month is the same, but it is greatly increased over six months or a year ago. My business was good during pantry stocking, but now it has leveled off some. Some of that is due to a shortage of aluminum can bodies and a resulting decrease in production. The big question is, how will employment bounce back? And whatever level of buying power people have, will their spending behavior be constrained by economic uncertainty?

Textile Product Mills

  • We are in the luxury bedding manufacturing business, and it seems that as more people are staying home, they are wanting to improve their bedroom luxuries. We are holding steady. Although we have lost sales at 400 retail stores [that carry our products] at the moment as they are closed, other areas have sharply increased to make up the difference. We feel very fortunate.

Apparel Manufacturing

  • Military uniform production and supply-store demand continue to be relatively strong.

Paper Manufacturing

  • There is a slight uptick in activity that gives hope. We fully expect a small second wave of COVID-19 that will be reported by the media as devastating and, therefore, influence the public back into a slowdown period that will affect the late second quarter and early third quarter.

Printing and Related Support Activities

  • The virus continues to impact our business. We are an “essential” business producing food packaging and medical packaging, specifically printing the raw material that is used for face masks. Sales of packaging for consumer packaged goods have increased 30-plus percent year over year, while packaging for institutional products has stopped. Face mask material demand is up over 1,000 percent year to date. Notwithstanding the COVID-related rise in unemployment, we are limited by our ability to bring in qualified, trainable candidates. This is our biggest impediment to further increases in production.
  • COVID-19 has shut down much of our customer base, and if not for work already in our pipeline, we would be stupid slow right now. This is as bleak of an outlook as we have ever had as long as I’ve been involved with the day-to-day business going back to 1987.

Miscellaneous Manufacturing

  • Customers are continuing to push orders out and do layoffs. We feel volumes will rebound in 4–6 months, but many customers will still be down 30–40 percent from pre-shutdown.
  • We had no change in the number of employees April vs. May only because we received a PPP grant. On June 1, 2020, employee hours will be reduced and salaried employees will see a decrease in compensation.
  • April was a very difficult month and had a significant negative impact to our performance against plan. We are still having significant stress and delays in our supply chain and productivity issues caused by employees working remotely. However, we are hopeful the worst is behind us, and we have a good plan to keep our employees productive and safe following safety protocols as everybody comes back to work. We don’t think keeping business closed is the right answer, but we do think following health guidelines is also important.

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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