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Texas Manufacturing Outlook Survey

September 28, 2020

Texas Manufacturing Recovery Picks Up Steam

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.

NOTE: We have discontinued the report PDF, but the page is formatted for your printer and will look similar to the PDF previously provided. You can either print the report or save it as a PDF via the print function of your browser.

Texas factory activity expanded in September for the fourth month in a row following a record contraction due to the COVID-19 pandemic, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose nine points to 22.3, its highest reading in two years.

Other measures of manufacturing activity point to above-average growth this month. The new orders index advanced five points to 14.7, and the growth rate of orders index held fairly steady at 13.2. The capacity utilization index rose from 10.9 to 17.5, while the shipments index was largely unchanged at 21.5.

Perceptions of broader business conditions continued to improve in September. The general business activity index pushed up six points to 13.6, its highest reading since November 2018. The company outlook index held mostly steady at 14.9, a reading well above average. Uncertainty regarding companies’ outlooks continued to rise, with the index positive but largely unchanged at 6.7.

Labor market measures indicated stronger employment growth and a continued increase in workweek length. The employment index pushed up from 10.6 to 14.5, suggesting more robust hiring. Twenty-four percent of firms noted net hiring, while 10 percent noted net layoffs. The hours worked index remained positive but moved down from 10.5 to 6.9.

Prices and wages increased further in September. The raw materials prices index rose seven points to 26.2, surpassing the series average. The finished goods prices index pushed up to 5.2, its highest reading in 17 months. Compensation costs continued to rise, with the wages and benefits index coming in at 15.9.

Expectations regarding future activity were generally more positive in September. The future production index pushed up further to a reading of 47.8, and the future general business activity index jumped eight points to 28.0. Most other measures of future manufacturing activity advanced further into positive territory.

Next release: Monday, October 26

Data were collected Sept. 15–23, and 106 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.

September 28, 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 Sep Index Aug Index Change Series
Average
Trend* % Reporting Increase % Reporting No Change % Reporting Decrease

Production

22.3

13.1

+9.2

9.8

4(+)

39.3

43.7

17.0

Capacity Utilization

17.5

10.9

+6.6

7.5

4(+)

33.8

49.9

16.3

New Orders

14.7

9.8

+4.9

5.6

4(+)

32.2

50.3

17.5

Growth Rate of Orders

13.2

11.8

+1.4

–0.5

3(+)

28.8

55.6

15.6

Unfilled Orders

6.0

7.8

–1.8

–3.0

3(+)

20.2

65.6

14.2

Shipments

21.5

23.3

–1.8

8.6

4(+)

38.3

45.0

16.8

Delivery Time

10.1

7.1

+3.0

–0.5

3(+)

19.8

70.5

9.7

Finished Goods Inventories

–1.9

–17.3

+15.4

–3.3

18(–)

13.3

71.4

15.2

Prices Paid for Raw Materials

26.2

19.4

+6.8

23.9

5(+)

29.3

67.6

3.1

Prices Received for Finished Goods

5.2

0.9

+4.3

5.9

2(+)

13.0

79.2

7.8

Wages and Benefits

15.9

15.2

+0.7

18.4

4(+)

19.1

77.7

3.2

Employment

14.5

10.6

+3.9

6.1

3(+)

24.0

66.5

9.5

Hours Worked

6.9

10.5

–3.6

2.3

3(+)

18.3

70.3

11.4

Capital Expenditures

2.8

0.0

+2.8

6.1

1(+)

17.0

68.9

14.2

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

Company Outlook

14.9

16.6

–1.7

6.3

4(+)

28.9

57.1

14.0

General Business Activity

13.6

8.0

+5.6

1.9

2(+)

32.0

49.5

18.4


Indicator Sep Index Aug Index Change Series
Average
Trend* % Reporting Increase % Reporting No Change % Reporting Decrease

Outlook Uncertainty†

6.7

8.2

–1.5

13.2

28(+)

23.8

59.0

17.1

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

Production

47.8

43.0

+4.8

38.1

5(+)

57.3

33.2

9.5

Capacity Utilization

40.8

41.0

–0.2

35.0

5(+)

49.0

42.8

8.2

New Orders

49.3

42.5

+6.8

35.9

5(+)

58.9

31.5

9.6

Growth Rate of Orders

37.6

39.2

–1.6

26.5

5(+)

47.8

42.0

10.2

Unfilled Orders

15.3

7.8

+7.5

3.8

4(+)

25.8

63.7

10.5

Shipments

41.4

36.0

+5.4

36.7

5(+)

52.4

36.6

11.0

Delivery Time

7.0

7.1

–0.1

–1.7

4(+)

18.9

69.2

11.9

Finished Goods Inventories

11.0

1.0

+10.0

–0.5

4(+)

22.0

67.0

11.0

Prices Paid for Raw Materials

33.4

22.1

+11.3

33.1

6(+)

36.3

60.8

2.9

Prices Received for Finished Goods

21.6

7.8

+13.8

18.9

5(+)

29.4

62.7

7.8

Wages and Benefits

38.1

28.1

+10.0

37.5

5(+)

40.8

56.5

2.7

Employment

23.3

27.6

–4.3

21.7

4(+)

34.7

53.9

11.4

Hours Worked

10.6

14.9

–4.3

9.2

5(+)

23.9

62.8

13.3

Capital Expenditures

23.9

13.0

+10.9

19.5

4(+)

37.8

48.3

13.9

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

Company Outlook

32.5

27.8

+4.7

20.3

4(+)

42.4

47.7

9.9

General Business Activity

28.0

20.4

+7.6

13.8

4(+)

41.5

44.9

13.5

*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.

September 28, 2020

Production Index

Downloadable chart

September 28, 2020

Comments from Survey Respondents

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

Chemical Manufacturing

  • Planned fall shutdowns are impacting production and capacity utilization. Shutdowns are aligning, however, with demand.

Plastics and Rubber Product Manufacturing

  • Our customers are waiting longer to place orders and then reacting to their decreased inventories by placing requests with quicker-than-normal turn-time desires.

Nonmetallic Mineral Product Manufacturing

  • Activity during September may be impacted by negative weather (Tropical Storm Beta). It could have been higher due to fundamentals.

Primary Metal Manufacturing

  • Our building and construction business continues to be robust. Other markets, including transportation, have picked up. Most major customers are concerned that things will slow down if a new administration increases taxes and social programs. Most say they will cut capital spending if that happens.
  • Election uncertainty, a Congress that is essentially deadlocked from approving another relief package, no infrastructure package and overall weak demand from many of our customers continue to put manufacturers in a state of uncertainty. We are seeing smaller customers who have either closed or essentially become nonexistent, all the way to our largest customers who continue cuts and lowering production outputs due to weak demand, especially in the oil and gas sector. The election cannot get here quickly enough. Hopefully, we will see some sense of normalcy by the first quarter.

Fabricated Metal Manufacturing

  • We continue to experience significant increases in demand while the supply chain is tightening. Decisions to decrease steel supply due to COVID-related issues (auto industry) and oil have begun to impact the steel supply for the construction industry.
  • We are bidding new projects that are being held up, we believe, until the outcome of the elections. A Trump win will cause our business to boom.
  • We are seeing a decrease in conversion of requests for quotation to confirmed purchase orders. Our requests for quotations have remained strong, but owners are deferring starting new projects and improvements.

Machinery Manufacturing

  • We are on the fence trying to decide what will happen over the next 90 days. The elections are now playing a big role in what will happen to our business over the next couple of years, depending on who is elected into power. And all my employees want is a secure job with steady income and a secure future that we can count on. Unfortunately, our leaders only want to create distrust, which does nothing for building our country’s future stability here at home or abroad.
  • The overreaction to COVID has created unnecessary havoc. Political motives do not belong in health care.
  • We are busier than ever and will end with a record year.
  • I want my old America back. I want some level of normalcy to return. 2020 began with orders and production rising, and COVID has virtually put us out of business, with no relief in the foreseeable future. I do not like this new order, this reset. 2020 will mark the worst year of business in the 72 years this company has operated.

Computer and Electronic Product Manufacturing

  • Auto demand has returned to near first quarter 2020 levels as factories have restarted following COVID shutdowns. We continue to see strength in markets that benefit from “work from home” trends, which we do not believe is sustainable. More broadly, inventories continue to appear lean and customers struggle with supply constraints to meet near-term demand. What is not clear is how much demand is sustainable beyond these factory restarts and inventory rebuilds. It likely will take into the first half of 2021 before that question is answered.
  • Customers are noncommittal regarding business activity in 2021. In my opinion, the full economic impact of the COVID-19 shutdowns will not materialize until later this year and into 2021.
  • Things seem to have stabilized as we moved into the second half of the year. We are still below 2019 levels, but we have actually performed better than 2019 in the last two months. The big revenue shortfalls were in April and May. It is steady at the moment, with perhaps very slow improvement over the past three months.

Transportation Equipment Manufacturing

  • The problem we have is getting production materials. Suppliers blame it on COVID and on worker shortages.

Furniture and Related Product Manufacturing

  • Activity for bid requests has increased significantly; decision-making is in a holding pattern or taking longer than usual. Price sensitivity has increased, while material costs have increased.

Food Manufacturing

  • We have had a 10 percent price increase in key ingredients. Interestingly enough, certain Chinese ingredients cost one-third of U.S.-produced ingredients.

Apparel Manufacturing

  • Future military uniform orders appear to be drastically reduced—chiefly due to a glut of inventory—partially tied to the pandemic.

Paper Manufacturing

  • We have seen slight improvements that we hope are not temporary.

Printing and Related Support Activities

  • We are starting to wind down from the overflow book work that has sustained us during this rough stretch in the business climate, and now we will soon have to live off the organic work that comes in on a regular basis, which is greatly reduced. Because of this, there is a lot of uncertainty about what the next six to eight months will look like.

Miscellaneous Manufacturing

  • Higher taxes and regulation will destroy opportunities for hard-working Americans and set everyone back.

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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