Texas Economy

Texas Manufacturing Outlook Survey

September 24, 2018

Texas Manufacturing Expansion Continues amid Increased Uncertainty

What’s New This Month

For this month’s survey, Texas business executives were asked supplemental questions on the impact of tariffs. 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 September, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, dipped six points to 23.3, indicating output growth continued but at a slower pace than last month.

Other indexes of manufacturing activity also suggested slower expansion in September. The new orders index fell nine points to 14.7, its lowest reading in six months. Similarly, the growth rate of orders index slipped to 11.5, also a six-month low. The capacity utilization index retreated slightly to 21.6, while the shipments index fell five points to 20.8.

Perceptions of broader business conditions remained positive this month, although outlooks were less optimistic and uncertainty increased further. The general business activity index edged down but remained highly elevated at 28.1. The company outlook index held above average but retreated nine points to 18.2, its lowest reading in more than a year. The relatively new index measuring uncertainty regarding companies’ outlooks moved up four points to a new high of 19.9.

Labor market measures suggest employment levels and work hours rose at a slower pace in September. The employment index remained positive but dropped 11 points to 17.7. One-quarter of firms noted net hiring, compared with 7 percent noting net layoffs. The hours worked index moved down to 12.7.

While price and wage pressures remained highly elevated in September, selling price increases again saw some deceleration. The raw materials prices index held fairly steady at 44.4, while the finished goods prices index edged down to 13.6. Compensation costs continued to rise at a faster clip than normal, with the wages and benefits index holding at 33.0.

Expectations regarding future business conditions remained positive in September. The indexes of future general business activity and future company outlook came in at 38.0 and 33.8, respectively. Other indexes for future manufacturing activity showed mixed movements this month but remained solidly in positive territory.

Next release: Monday, October 29

Data were collected Sep. 11–19, and 116 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 24, 2018

Results Summary

Business Indicators Relating to Facilities and Products in Texas Current (versus previous month)
Indicator	Sep Index	Aug Index	Change	Indicator Direction*	Trend** (Months)	% Reporting Increase	% Reporting No Change	% Reporting Decrease
Production	23.3	29.3	–6.0	Increasing	27	31.9	59.5	8.6
Capacity Utilization	21.6	25.2	–3.6	Increasing	27	29.7	62.2	8.1
New Orders	14.7	23.9	–9.2	Increasing	23	28.2	58.3	13.5
Growth Rate of Orders	11.5	19.9	–8.4	Increasing	21	24.2	63.1	12.7
Unfilled Orders	1.8	9.1	–7.3	Increasing	18	13.4	75.0	11.6
Shipments	20.8	26.0	–5.2	Increasing	22	29.9	61.0	9.1
Delivery Time	4.1	8.9	–4.8	Increasing	15	13.6	76.9	9.5
Finished Goods Inventories	6.0	13.9	–7.9	Increasing	2	12.9	80.2	6.9
Prices Paid for Raw Materials	44.4	45.3	–0.9	Increasing	31	45.0	54.4	0.6
Prices Received for Finished Goods	13.6	15.3	–1.7	Increasing	26	20.4	72.8	6.8
Wages and Benefits	33.0	33.4	–0.4	Increasing	110	34.9	63.2	1.9
Employment	17.7	28.9	–11.2	Increasing	21	25.1	67.5	7.4
Hours Worked	12.7	19.0	–6.3	Increasing	23	18.1	76.5	5.4
Capital Expenditures	17.0	25.1	–8.1	Increasing	25	21.0	74.9	4.0

General Business Conditions Current (versus previous month)
Indicator	Sep Index	Aug Index	Change	Indicator Direction*	Trend** (Months)	% Reporting Improved	% Reporting No Change	% Reporting Worsened
Company Outlook	18.2	27.3	–9.1	Improving	25	25.6	67.0	7.4
General Business Activity	28.1	30.9	–2.8	Improving	23	31.4	65.3	3.3


Indicator	Sep Index	Aug Index	Change	Indicator Direction*	Trend** (Months)	% Reporting Increase	% Reporting No Change	% Reporting Decrease
Outlook Uncertainty†	19.9	16.2	+3.7	Increasing	4	25.9	68.1	6.0

Business Indicators Relating to Facilities and Products in Texas Future (six months ahead)
Indicator	Sep Index	Aug Index	Change	Indicator Direction	Trend* (Months)	% Reporting Increase	% Reporting No Change	% Reporting Decrease
Production	43.7	46.6	–2.9	Increasing	115	49.5	44.7	5.8
Capacity Utilization	41.0	38.2	+2.8	Increasing	115	48.0	45.0	7.0
New Orders	44.9	47.4	–2.5	Increasing	115	48.8	47.3	3.9
Growth Rate of Orders	37.2	40.4	–3.2	Increasing	115	42.3	52.6	5.1
Unfilled Orders	12.7	9.7	+3.0	Increasing	36	20.7	71.3	8.0
Shipments	42.2	49.2	–7.0	Increasing	115	46.9	48.4	4.7
Delivery Time	5.7	7.1	–1.4	Increasing	22	11.9	81.9	6.2
Finished Goods Inventories	10.3	9.9	+0.4	Increasing	11	18.7	72.9	8.4
Prices Paid for Raw Materials	43.0	43.5	–0.5	Increasing	114	46.7	49.5	3.7
Prices Received for Finished Goods	28.0	32.0	–4.0	Increasing	32	35.5	57.0	7.5
Wages and Benefits	57.4	45.5	+11.9	Increasing	172	57.8	41.8	0.4
Employment	39.4	42.2	–2.8	Increasing	70	42.8	53.8	3.4
Hours Worked	11.4	11.3	+0.1	Increasing	28	17.8	75.8	6.4
Capital Expenditures	37.8	39.9	–2.1	Increasing	106	41.0	55.8	3.2

General Business Conditions Future (six months ahead)
Indicator	Sep Index	Aug Index	Change	Indicator Direction*	Trend** (Months)	% Reporting Increase	% Reporting No Change	% Reporting Worsened
Company Outlook	33.8	34.3	–0.5	Improving	32	38.8	56.2	5.0
General Business Activity	38.0	34.7	+3.3	Improving	28	40.2	57.6	2.2

*Indicator direction refers to this month's index. If index is positive (negative), indicator is increasing (decreasing) or improving (worsening). If zero, indicator is unchanged.

**Number of months moving in current direction.

†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 24, 2018

Production Index

September 24, 2018

Comments from Survey Respondents

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

Chemical Manufacturing

We are starting to see our larger clients postpone inventory positions, thus increasing cycle times. Raw materials are increasingly more difficult to obtain, even with supply agreements in place.
The demand for skilled employees is much higher than the supply. If skilled workers don't move to the Texas Gulf Coast, there will be trouble.
We are experiencing a severe raw material shortage, which is causing a flat rate of production. We could sell more, but lack of raw materials limits this.

Nonmetallic Mineral Product Manufacturing

Prices for steel have increased by 30 percent due to import tariffs. This has cut operating margins for the past four months and will continue to have an effect until these fixed-price bids are completed. New contracts will reflect higher raw material costs and higher prices to our customers.

Primary Metal Manufacturing

We still have major concerns and uncertainty in regard to future raw material prices and availability due to tariffs, sanctions and possible quotas on raw aluminum.
Business is good. We love President Trump and his policies. Keep it up.
We are still working through burdensome regulatory issues, primarily the new silica rule, in which the Labor Department has been reluctant to hear industry concerns. Regardless, we continue to move forward with expansion and capital expenditures to reduce silica dust throughout the entire facility.

Fabricated Metal Product Manufacturing

The first two to three weeks of August was a clear slowdown. The September activity and quote level is back to first- and second-quarter levels. There has been some price stabilization on steel (even a few percentage-points rollback as new supply capacity becomes available at the mills).
If the Democrats take over either the House or Senate, the outlook will change for the worse. No doubt about it.
Metal lead times and pricing remain at increased levels.

Machinery Manufacturing

We are experiencing a lull in business activity compared with recent months. However, we also believe that this situation will be temporary, as all other signs in our industry remain strong. We remain cautiously optimistic.
Of course, steel tariffs are hurting us, but we’ve seen this before. Big companies get protection, while little companies pay the price. We saw two months (July/August) with an uptick of about 8 percent in sales, but it looks like September and October will drop back down.
Third-quarter sales are generally the slowest annually because of vacations by our customers. However, we already see the pickup in orders for year-end completion of projects and money that needs to be spent. Our sales have already exceeded all of 2017, and we are forecasting a 45 percent increase. We are looking forward to 2019 already since our customers are telling us to get ready for another strong year of business. I believe that many of our competitors are seeing the same outlook.

Electrical Equipment, Appliance, and Component Manufacturing

Construction is strong coast to coast, which is driving sales of our products. Finding blue-collar labor is tough, especially since we drug test for safety in our plants. Many applicants either walk away from or fail drug tests. Some are amazed we fail them for pot. Random tests in the office have also resulted in dismissal of a couple of people. America has a problem!

Transportation Equipment Manufacturing

Our business has been very consistent this year, which is good. The constant price increases from our suppliers are definitely decreasing our profits. Our market will not permit us to raise our prices to the point of matching the increases.
Our volume outlook has improved due to adding a new production model.

Paper Manufacturing

It is getting worse every month trying to find employees.

Printing and Related Support Activities

These are still very challenging times—nothing like the fun months during 2005 through 2009. There is way too much uncertainty in Washington with our unpredictable leader. However, the economy seems to be better and hopefully this will continue. We source a lot of materials from non-U.S. suppliers, and those are starting to be a problem. We don’t have domestic options on some of these, so between tariffs and longer lead times, it can be a real challenge.

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.