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Texas Manufacturing Outlook Survey

Report in PDF

June 29, 2020

Manufacturing Regains Footing After Epic Decline

What’s New This Month

For this month’s survey, Texas business executives were asked supplemental questions on the impacts of COVID-19. 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 rebounded strongly in June, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, climbed from -28.0 to 13.6, indicating moderate expansion in output following three months of record or near-record declines.

Other measures of manufacturing activity also pointed to a rebound in growth this month. The new orders index advanced 34 points to 2.9, its first positive reading in four months, with nearly a third of manufacturers noting an increase in orders. The growth rate of orders index pushed up 25 points but remained negative at -5.8. The capacity utilization and shipments indexes also returned to positive territory.

Perceptions of broader business conditions were mixed in June. The general business activity index surged 43 points but stayed negative at -6.1. The company outlook index climbed back into positive territory, from -34.6 to 2.7, with 29 percent of manufacturers noting improved outlooks, up from 12 percent last month. The index measuring uncertainty regarding companies’ outlooks retreated notably again to 9.1—its lowest reading since January. The positive reading still indicates increased uncertainty.

Labor market measures indicated virtually flat employment levels and shorter workweeks this month. The employment index remained negative but rose 10 points to -1.5. Fifteen percent of firms noted net hiring, while 17 percent noted net layoffs. The hours worked index rose from -22.8 to -4.3, with the still-negative reading signaling reduced workweek length.

Prices and wages showed mixed movements in June. The raw materials prices index moved up 10 points to 12.3. The finished goods prices index, however, remained negative for the sixth straight month as it moved up from -19.4 to -4.7. The wages and benefits index returned to positive territory after two negative readings, coming in at 6.8.

Expectations regarding future business conditions were universally positive in June. The future company outlook and future general business activity indexes returned to positive territory at 16.2 and 19.7, respectively. Other indexes of future manufacturing activity pushed further positive.

Next release: Monday, July 27

Data were collected June 16–24, 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.

June 29, 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)
IndicatorJun IndexMay IndexChangeSeries
Average
Trend*% Reporting Increase% Reporting No Change% Reporting Decrease

Production

13.6

–28.0

+41.6

9.7

1(+)

40.0

33.6

26.4

Capacity Utilization

7.6

–26.0

+33.6

7.4

1(+)

35.5

36.5

27.9

New Orders

2.9

–30.6

+33.5

5.6

1(+)

32.4

38.1

29.5

Growth Rate of Orders

–5.8

–30.8

+25.0

–0.7

4(–)

27.2

39.8

33.0

Unfilled Orders

–2.3

–17.4

+15.1

–3.2

4(–)

17.1

63.5

19.4

Shipments

3.1

–25.7

+28.8

8.4

1(+)

33.5

36.1

30.4

Delivery Time

–0.3

–10.0

+9.7

–0.6

4(–)

12.0

75.7

12.3

Finished Goods Inventories

–9.8

–8.9

–0.9

–3.2

15(–)

16.1

58.0

25.9

Prices Paid for Raw Materials

12.3

2.5

+9.8

24.0

2(+)

23.1

66.1

10.8

Prices Received for Finished Goods

–4.7

–19.4

+14.7

5.9

6(–)

9.8

75.7

14.5

Wages and Benefits

6.8

–0.2

+7.0

18.4

1(+)

18.3

70.2

11.5

Employment

–1.5

–11.5

+10.0

6.1

5(–)

15.4

67.7

16.9

Hours Worked

–4.3

–22.8

+18.5

2.3

4(–)

16.2

63.3

20.5

Capital Expenditures

–10.5

–33.9

+23.4

6.2

4(–)

10.4

68.7

20.9

General Business Conditions
Current (versus previous month)
IndicatorJun IndexMay IndexChangeSeries
Average
Trend**% Reporting Improved% Reporting No Change% Reporting Worsened

Company Outlook

2.7

–34.6

+37.3

6.2

1(+)

29.1

44.6

26.4

General Business Activity

–6.1

–49.2

+43.1

1.8

4(–)

25.0

43.8

31.1

IndicatorJun IndexMay IndexChangeSeries
Average
Trend*% Reporting Increase% Reporting No Change% Reporting Decrease

Outlook Uncertainty†

9.1

28.3

–19.2

13.3

25(+)

33.6

41.8

24.5

Business Indicators Relating to Facilities and Products in Texas
Future (six months ahead)
IndicatorJun IndexMay IndexChangeSeries
Average
Trend*% Reporting Increase% Reporting No Change% Reporting Decrease

Production

38.7

29.7

+9.0

38.1

2(+)

56.6

25.5

17.9

Capacity Utilization

40.3

28.1

+12.2

34.9

2(+)

55.7

28.9

15.4

New Orders

33.9

17.8

+16.1

35.8

2(+)

51.1

31.7

17.2

Growth Rate of Orders

32.8

13.0

+19.8

26.4

2(+)

49.1

34.7

16.3

Unfilled Orders

8.7

–4.3

+13.0

3.7

1(+)

20.6

67.5

11.9

Shipments

32.0

13.4

+18.6

36.7

2(+)

49.3

33.4

17.3

Delivery Time

0.7

–1.9

+2.6

–1.8

1(+)

11.7

77.3

11.0

Finished Goods Inventories

1.9

–7.7

+9.6

–0.5

1(+)

22.5

56.9

20.6

Prices Paid for Raw Materials

19.4

21.9

–2.5

33.2

3(+)

25.2

68.9

5.8

Prices Received for Finished Goods

7.7

4.8

+2.9

19.0

2(+)

18.4

70.9

10.7

Wages and Benefits

21.6

12.7

+8.9

37.7

2(+)

27.8

66.0

6.2

Employment

18.6

–3.5

+22.1

21.7

1(+)

30.8

57.0

12.2

Hours Worked

4.8

7.8

–3.0

9.1

2(+)

16.8

71.2

12.0

Capital Expenditures

10.4

–7.7

+18.1

19.5

1(+)

29.7

51.0

19.3

General Business Conditions
Future (six months ahead)
IndicatorJun IndexMay IndexChangeSeries
Average
Trend**% Reporting Increase% Reporting No Change% Reporting Worsened

Company Outlook

16.2

–11.2

+27.4

20.2

1(+)

34.6

47.1

18.4

General Business Activity

19.7

–19.0

+38.7

13.7

1(+)

40.1

39.6

20.4

*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.

June 29, 2020

Production Index

Downloadable chart

June 29, 2020

Comments from Survey Respondents

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

Plastics and Rubber Product Manufacturing

  • We are an essential supplier to retailers. Unlike most businesses today, some of our retailers are doing well, but that doesn’t translate to us.
  • The oil market continues to struggle. Even though states have begun to slowly open, the demand for oil hasn’t recovered as quickly as we would hope. Best-case scenario: We won’t see an uptick until fourth quarter, and that is assuming COVID-19 doesn’t have a resurgence. The upside is that domestic drilling is still at a standstill and international drilling is slowly pulling back. At some point, things will have to pick up in order to meet normal oil demand.

Nonmetallic Mineral Product Manufacturing

  • While we still are looking at many unknowns due to COVID-19 (second wave, another lockdown, etc.), demand is up for us sharply in the building materials business. It has surprised us and our distribution customers and their homebuilder customers. Some customers are still projecting a downturn, but we don’t see it happening. So we are increasing inventory and planning for further order volume increases by starting to hire new employees ... above our pre-COVID levels.

Primary Metal Manufacturing

  • Will there be a second wave?
  • Some of our building and construction customers have seen an increase but some have not. There is some pent-up demand from construction jobsite shutdowns now being reopened. The better-run companies are gaining market share. Our transportation market customers have not seen an uptick yet, and it is not expected by most.
  • We continue to feel the negative impacts from the COVID-19 shutdown. Orders are off by as much as 73 percent, and our top 30 customers, many in the oil and gas production side, continue to indicate flat to negative growth through at least the fourth quarter of 2020. While the PPP [Paycheck Protection Program] was a tremendous help, we are finding more probable workforce applicants would rather take advantage of the current unemployment benefits. A positive step would be to incentivize people to return to work rather than stay home and essentially make the same income.
  • New commercial building starts other than residential are slowing to a snail’s pace. Contractors and developers are telling us that this sector will not come back until first or second quarter 2021.

Fabricated Metal Manufacturing

  • WTI [West Texas Intermediate] crude oil above $35 per barrel has helped the outlook. We need $40 per barrel.
  • While revenues have increased over last month, that is only from a very depressed level. Orders continue to slow, and we’re not sure if or when we will get back to pre-COVID-19 levels.
  • Refinancing of our line of credit comes up July 30, with a lot of uncertainty due to our continued losses from the downturn in the energy and petrochemical sectors.

Machinery Manufacturing

  • General business activity is increasing, and we will also be making a product for COVID-19 testing starting in June that is ultra-high volume. We are very confident that the year will end strong for our business.
  • Even though we have seen a decrease in sales, quotes have increased substantially. We feel like they are foretelling better days ahead. Oil prices are rising, and we believe that business will return in the next six months to a more normal level.
  • As we are a long-cycle business, COVID-19 impacts are just now starting to manifest themselves in fewer orders, delays of existing orders, etc. We have frozen compensation, let some contract workers go and will likely reduce some of our full-time workforce as well. The recent spike in COVID-19 numbers throughout Texas (since Memorial Day) is adding considerable uncertainty going forward.
  • Business was actually on the upswing for the first time in years. In fourth quarter 2019 and first quarter 2020, we saw sales increasing steadily. Then the government shut the economy down and sales dropped 50 percent in May (April consisted of finishing up orders placed in the two months prior). During April, the volume of new orders and inquiries simply stopped. Now we are back to operating on a trickle of work coming in. May was a disaster and June doesn’t look much better. We have zero backlog for July. COVID-19 is the biggest disaster of all time.

Computer and Electronic Product Manufacturing

  • Demand has continued to remain strong. The industry still has significant pockets of supply constraints, which may be driving demand unnaturally. We’re remaining cautiously optimistic as customers begin to adjust their production schedules as demand returns.
  • We’re starting to come out of a very slow April due to COVID-19 shutdowns. Business seems to be slowly increasing but is still far below 2019 levels for the premises-based installs. Cloud solutions remain on a steady growth path.
  • Business feels like everything is in limbo.

Transportation Equipment Manufacturing

  • Our outlook has improved due to increased demand for RVs and an improving, but still somewhat weak, economy.
  • We continue to have supply-chain issues resulting in longer lead times and, oftentimes, having to rely on more expensive supply sources. Filling openings for lower-skilled positions has become more difficult due to the $600-per-week incentive that is being paid to remain on unemployment insurance. Overall operating costs have increased markedly due to the additional precautions that must be taken to protect team members from COVID-19 exposure. We live in interesting times!

Food Manufacturing

  • How do you define “uncertainty”? The matrix of COVID-19, riots, unstable economy and inflation of the money supply add up to quite a hurdle to jump over to move to “certainty.” Again, we can sell virtually all we can produce. Coordination of FEMA/federal funds into the food relief supply system can be problematic. Adaptation is the key.
  • COVID-19 case increases are affecting our employees being out.
  • Although our business is very strong, there remains a significant amount of uncertainty, which we must navigate and manage as best as possible. COVID-19 remains a threat to our team, and we continue to invest heavily to minimize the chance of one of our team members contracting COVID-19 at work. Consumer behavior coming out of the pandemic will change, and we are working hard to try to position our company for success in a post-pandemic environment.

Apparel Manufacturing

  • We are concerned about negative coronavirus trends.

Paper Manufacturing

  • May had a bump in orders, but that has tailed off in June. July looks slower at this point.
  • Demand remains very difficult to read. For our business, June is definitely up vs. May, but we expect that to change. We’re heavily vested in food service segments, so we’re riding the “restocking” increase due to restaurant activity resuming. However, we expect activity in this segment to settle into a normal [level] far weaker than we’re currently experiencing.

Printing and Related Support Activities

  • Until our economy opens up, our customers are reluctant to invest in marketing to try and fill up a business that is not allowed to operate at full capacity.
  • We have one customer who has sent us a lot of work that normally we would not be able to accommodate, but due to commercial printing being slow, this increase in work has been a godsend. Without it, we would be around 15 percent of our normal billing amount, and now we are close to being equal. We believe this will continue until the middle of July, and then we expect it to get very slow and painful.

Miscellaneous Manufacturing

  • Customers are continuing to push out previously scheduled orders, increasing our inventories. Most customers anticipate 80 percent of normal activity by August; some in restaurants/casino equipment are anticipating an 18-month recovery.
  • Extended customer requirement terms and more cash-on-delivery receivable requirements are putting a strain on both shipments and receipts. A [major] customer’s demand for 180-day terms is having a major effect on the entire craft industry. Potential bankruptcy among a number of large school and craft distributors looms in the near future.

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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