Texas Economy

Texas Manufacturing Outlook Survey

July 27, 2020

Texas Manufacturing Recovery Continues

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 continued to expand in July following a record contraction in the spring, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, inched up from 13.6 to 16.1, suggesting a slight pickup in the pace of output growth.

Other measures of manufacturing activity also pointed to slightly accelerating growth this month. The new orders index advanced four points to 6.9. The growth rate of orders index turned positive in July, coming in at 1.3, after spending four months in negative territory. The capacity utilization and shipments indexes pushed up to 14.0 and 17.3, respectively, their highest readings in nearly a year.

Perceptions of broader business conditions were mixed in July. The general business activity index remained slightly negative, edging up from -6.1 to -3.0. The company outlook index registered a second consecutive positive reading, increasing three points to 5.9. The index measuring uncertainty regarding companies’ outlooks shot up from 9.1 to 20.9, with more than a third of manufacturing executives indicating increased uncertainty from June.

Labor market measures indicated modest growth in employment and workweek length. The employment index pushed up from -1.5 to 3.1, marking its first positive reading since January. Eighteen percent of firms noted net hiring, while 15 percent noted net layoffs. The hours worked index also turned positive, rising from -4.3 to 5.8.

Input and labor costs continued to increase, while selling prices were fairly flat in July. The raw materials prices index posted a third positive reading in a row but fell slightly from 12.3 to 9.7. The wages and benefits index was positive for a second consecutive month, rising from 6.8 to 9.0. The finished goods prices index, however, remained slightly negative, inching up three points to -1.5. This near-zero reading suggests little change in selling prices from June following four months of more-pronounced price declines.

Expectations regarding future business activity remained universally positive in July, though some were less positive than last month. The future production index slipped to 37.2, while the future general business activity index dropped nine points to 10.6.

Next release: Monday, August 31

Data were collected July 14–22, 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.

July 27, 2020

Results Summary

Business Indicators Relating to Facilities and Products in Texas Current (versus previous month)
Indicator	Jul Index	Jun Index	Change	Series Average	Trend*	% Reporting Increase	% Reporting No Change	% Reporting Decrease
Production	16.1	13.6	+2.5	9.7	2(+)	37.4	41.2	21.3
Capacity Utilization	14.0	7.6	+6.4	7.4	2(+)	30.9	52.2	16.9
New Orders	6.9	2.9	+4.0	5.6	2(+)	30.6	45.7	23.7
Growth Rate of Orders	1.3	–5.8	+7.1	–0.7	1(+)	24.8	51.7	23.5
Unfilled Orders	7.9	–2.3	+10.2	–3.1	1(+)	20.7	66.5	12.8
Shipments	17.3	3.1	+14.2	8.4	2(+)	35.7	45.9	18.4
Delivery Time	3.2	–0.3	+3.5	–0.6	1(+)	15.0	73.2	11.8
Finished Goods Inventories	–9.9	–9.8	–0.1	–3.2	16(–)	13.5	63.1	23.4
Prices Paid for Raw Materials	9.7	12.3	–2.6	23.9	3(+)	20.6	68.5	10.9
Prices Received for Finished Goods	–1.5	–4.7	+3.2	5.9	7(–)	9.3	79.9	10.8
Wages and Benefits	9.0	6.8	+2.2	18.4	2(+)	15.1	78.8	6.1
Employment	3.1	–1.5	+4.6	6.0	1(+)	17.9	67.3	14.8
Hours Worked	5.8	–4.3	+10.1	2.3	1(+)	22.3	61.2	16.5
Capital Expenditures	–3.0	–10.5	+7.5	6.2	5(–)	14.5	68.0	17.5

General Business Conditions Current (versus previous month)
Indicator	Jul Index	Jun Index	Change	Series Average	Trend**	% Reporting Improved	% Reporting No Change	% Reporting Worsened
Company Outlook	5.9	2.7	+3.2	6.2	2(+)	27.2	51.5	21.3
General Business Activity	–3.0	–6.1	+3.1	1.8	5(–)	26.0	44.9	29.0


Indicator	Jul Index	Jun Index	Change	Series Average	Trend*	% Reporting Increase	% Reporting No Change	% Reporting Decrease
Outlook Uncertainty†	20.9	9.1	+11.8	13.6	26(+)	34.5	51.8	13.6

Business Indicators Relating to Facilities and Products in Texas Future (six months ahead)
Indicator	Jul Index	Jun Index	Change	Series Average	Trend*	% Reporting Increase	% Reporting No Change	% Reporting Decrease
Production	37.2	38.7	–1.5	38.0	3(+)	51.3	34.6	14.1
Capacity Utilization	30.7	40.3	–9.6	34.9	3(+)	43.3	44.0	12.6
New Orders	38.6	33.9	+4.7	35.8	3(+)	51.4	35.8	12.8
Growth Rate of Orders	30.4	32.8	–2.4	26.4	3(+)	43.0	44.5	12.6
Unfilled Orders	2.7	8.7	–6.0	3.7	2(+)	12.5	77.7	9.8
Shipments	33.2	32.0	+1.2	36.7	3(+)	45.6	42.1	12.4
Delivery Time	4.8	0.7	+4.1	–1.8	2(+)	9.2	86.4	4.4
Finished Goods Inventories	1.0	1.9	–0.9	–0.5	2(+)	15.7	69.6	14.7
Prices Paid for Raw Materials	22.3	19.4	+2.9	33.2	4(+)	26.2	69.9	3.9
Prices Received for Finished Goods	10.9	7.7	+3.2	19.0	3(+)	21.8	67.3	10.9
Wages and Benefits	22.5	21.6	+0.9	37.6	3(+)	26.9	68.7	4.4
Employment	11.1	18.6	–7.5	21.7	2(+)	26.4	58.3	15.3
Hours Worked	9.9	4.8	+5.1	9.1	3(+)	20.5	68.9	10.6
Capital Expenditures	11.6	10.4	+1.2	19.5	2(+)	25.6	60.4	14.0

General Business Conditions Future (six months ahead)
Indicator	Jul Index	Jun Index	Change	Series Average	Trend**	% Reporting Increase	% Reporting No Change	% Reporting Worsened
Company Outlook	18.7	16.2	+2.5	20.2	2(+)	34.4	49.9	15.7
General Business Activity	10.6	19.7	–9.1	13.7	2(+)	28.2	54.2	17.6

*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.

July 27, 2020

Production Index

July 27, 2020

Comments from Survey Respondents

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

Chemical Manufacturing

There is still a lot of uncertainty as COVID numbers surge. Any additional government shutdowns would lead to a drop in demand. Orders are slightly increasing week over week, but there’s no major shift.
The resurgence of COVID around the globe has extended our view of how long it will take to recover from the economic shock, especially in key industry sectors around autos/travel.
Exports have improved due to some apparent reopening overseas. Slow auto sales have affected our sales, which are three levels lower in the supply chain. Customer forecasts had been lower and lower, but recent customer forecasts are improved slightly.

Plastics and Rubber Product Manufacturing

Between the 11.1 percent unemployment in the U.S. and the continued need for social distancing and quarantining, new orders are considerably down. The WTI [West Texas Intermediate] oil price is hovering around $40 per barrel, which in most cases is enough to allow drillers to resume with some profit, but it isn’t necessary due to current oil demand. This continued lack of oil consumption makes our overall outlook uncertain. The upside is, someone has to give. Eventually, the U.S. will need to resume drilling in order to ensure there isn’t a shortage. How long this will take is hard to determine, but expectations are that things will slowly begin to recover around the fourth quarter of this year or early in the first quarter of 2021.
I hope it is not a worthless effort to expend energy to increase market share. While competition and the customer base are complacent to sit and observe that no vaccine silver bullet yet exists, we dare to be different. I don’t get that so many of us wait for a virus to darken our doorway. Too often, only then do we get serious—in business, in our causes and even in our individual health circumstances. I am not fond of inertia.

Nonmetallic Mineral Product Manufacturing

Planning is not impossible, but now it is more contingency planning for the short term instead of the normal 6–12–24-month plans. There are many more “what-if” questions to be answered. In the building materials business, the questions this week are “can we keep up with historically high demand?” coupled with “can we stay healthy?”

Primary Metal Manufacturing

Demand for our building and construction industry raw material has increased significantly. Overall demand is up and, in addition to that, we have taken market share from our competitors who have had financial issues during COVID-19 that affected their overall service ability.

Fabricated Metal Manufacturing

We feel the uncertainty will remain. Business is steady but is changing somewhat. Inventories on the supply chain are diminishing, leading to longer lead times for supplies.
We cannot reopen [the economy] yet! Our business does not rely on outside foot traffic, small as we are and safe as we try to keep. We do not need random people coming in our door. Use the internet or phone!
It’s hard to get people to come to work and hard to hire anyone.
Uncertainty of bank credit line renewal due to losses is a major concern. Small Business Administration PPP [Paycheck Protection Program] loan proceeds were expended last month.

Machinery Manufacturing

The elections are now starting to be factored into my thinking of how business will be in the future. With a Biden and Democratic victory, we will see oil companies pull back significantly, and that will hurt the economy and my business. Democrats seem to tax more businesses and impose regulations that hurt everyone more and especially companies that require energy. This thinking always amazes me since energy is so vital to our economy for growth and individuals’ freedom.
New orders are starting to pour in, and we are busy again!
It’s almost as if someone turned off the spigot. Inquiries have virtually stopped. Orders have virtually stopped. Sales to date (July 14) are down 90 percent. The world has gone berserk. If this is “the new normal,” we may as well close shop.
The COVID-19 threat is way overblown. The government needs to back off.

Computer and Electronic Product Manufacturing

Auto demand is returning as factories in the U.S. and Europe come back online. Other markets remain stable. We remain cautious about demand.
We deal with government entities. I don’t know what the fallout and budget cuts from the current pandemic will be.
The increase in COVID cases has created more uncertainty regarding the future.
We need to let this pandemic take its course. Stopping the economy will cause bigger problems. Wear masks and practice good hygiene. Let business be open.

Transportation Equipment Manufacturing

While our outlook has improved, the COVID-19 threat continues to be a black cloud that, if not removed, can quickly turn our outlook negative.
The lack of consistency at the federal and state level of mandatory safety measures against COVID-19 is creating a lot of uncertainty and added cost to protect the employees. In addition, when there are confirmed cases, all of them community-related thus far (versus contracted at work), the contact tracing and isolation of potentially affected employees while awaiting test results is creating challenges for business continuity.
New contract awards have declined precipitously during the period since June 1.

Food Manufacturing

We do humanitarian food relief, now domestically as well as internationally. It is a volatile supply chain/production cycle trying to go into a huge and unfulfilled demand or need. We can provide as much as we can produce. We are a nonprofit. However, no margin equals no mission. We have a great business- and science-related board and will merge our mission into or with a demanding production schedule, at least for the foreseeable future. We are running 10–12-hour shifts as I write. Our smaller suppliers are under significant economic stress, and there is uncertainty once the PPP/support payments cease.
In early July, we had an accident which impacted our production and sales volume for July. We anticipate the plant being back up to normal capacity and volume levels by the end of the month.

Textile Product Mills

We are just planning day to day as we don’t feel like we can do anything else. We’re reacting to the environment while actively marketing our products.

Wood Product Manufacturing

We have been exceptionally busy; our “will call” business has picked up as the Lowe's and Home Depots restrict activity. Construction in general has continued to be minimally affected by the pandemic. The lumber and panel markets are also rising, which increases sales numbers.

Paper Manufacturing

The outlook for the remainder of 2020 has remained the same: A slow July falloff has reinforced the disappearance of a V-shaped recovery.

Printing and Related Support Activities

The gradual opening up of the national economy is helping our customers and has encouraged them to spend more on marketing. The coming fall season is a big factor for many of our clients as they know they have to make it during these next few months or they will close down forever. I feel we will see a surge in our kind of marketing (direct mail) as it is the most measurable and gets good results. Since March, we have seen about one-third of the normal volumes, so the recent uptick to about one-half of normal is an encouraging trend.
The inevitable decline in orders has happened after the surge in demand for consumer packaged goods in the first quarter (we produce packaging for consumer packaged goods). The second quarter was flat versus the prior year, and I am concerned that the third quarter will not equal last year due to demand drops from lack of sales to institutions (schools, hospitality industry). Double-digit unemployment rates and lack of consumer spending will adversely impact our business/industry.
Like last month, we have one “angel” customer that has kept us very busy with overflow work that they would normally be doing in-house, but because of the shutdown and COVID -19 delays, they need help. It’s been a huge blessing for us; otherwise, we would be at 20 to 30 percent of normal volume, with a huge furloughing of employees now that PPP funds have run out. We are starting to see some increase in activity, so perhaps August and September may not be that much of a bloodbath. We are very concerned with the possible extreme slowdown that could occur toward the end of the year and into 2021.

Miscellaneous Manufacturing

The virus is beginning to hurt our business. We had to send two employees home today because they were around someone who had the virus.

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.