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Texas Economy

Texas Manufacturing Outlook Survey

Report in PDF

November 26, 2018

Texas Manufacturing Expansion Continues to Moderate

What’s New This Month

For this month’s survey, Texas business executives were asked supplemental questions on the labor market. 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 November, albeit at a markedly slower pace, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, remained positive but fell nine points to 8.4, indicating output growth continued to abate.

Other indexes of manufacturing activity also suggested notably slower expansion in November. The survey’s demand indicators—the new orders and growth rate of new orders indexes—declined to 9.7 and 4.8, respectively, representing their lowest readings in 20 months. The capacity utilization index fell six points to 9.4, and the shipments index fell nine points to 7.7, both at their lowest levels in at least 20 months.

Perceptions of broader business conditions remained positive overall but were less optimistic than in October. The general business activity and company outlook indexes posted double-digit declines, coming in at 17.6 and 13.7, respectively. These readings are lower than what has been seen over the past year but still well above long-term averages. The index measuring uncertainty regarding companies’ outlooks rose five points to 12.3, indicating uncertainty was more widespread this month.

Labor market measures suggested continued but slower employment growth and longer workweeks in November. The employment index retreated eight points to 15.9, a level well above average. Twenty-three percent of firms noted net hiring, compared with 7 percent noting net layoffs. The hours worked index edged down to 4.9.

Price and wage increases eased in November. The raw materials prices index posted a 21-point decline to 33.7 after reaching a seven-year high last month. The finished goods prices index also fell, down 10 points to 7.5. However, both indexes remained well above average. Compensation costs also continued to rise at a faster clip than normal, although the pace slowed from October, with the wages and benefits index moving down eight points to 24.9.

Expectations regarding future business conditions remained positive in November, although they were less optimistic than in October. The indexes of future general business activity and future company outlook remained well above average but fell to 25.7 and 31.4, respectively. Other indexes of future manufacturing activity showed mixed movements this month but remained solidly in positive territory.

Next release: Monday, December 31

Data were collected Nov. 12–20, and 114 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.

November 26, 2018

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 Nov Index Oct Index Change Indicator Direction* Trend** (Months) % Reporting Increase % Reporting
No Change
% Reporting Decrease

Production

8.4

17.6

–9.2

Increasing

29

24.9

58.6

16.5

Capacity Utilization

9.4

15.4

–6.0

Increasing

29

23.7

62.0

14.3

New Orders

9.7

18.9

–9.2

Increasing

25

29.6

50.5

19.9

Growth Rate of Orders

4.8

11.0

–6.2

Increasing

23

20.7

63.4

15.9

Unfilled Orders

4.5

5.9

–1.4

Increasing

20

16.3

71.9

11.8

Shipments

7.7

16.6

–8.9

Increasing

24

29.4

49.0

21.7

Delivery Time

1.8

7.5

–5.7

Increasing

17

10.0

81.8

8.2

Finished Goods Inventories

2.6

2.6

0.0

Increasing

4

15.9

70.8

13.3

Prices Paid for Raw Materials

33.7

54.4

–20.7

Increasing

33

41.8

50.1

8.1

Prices Received for Finished Goods

7.5

17.5

–10.0

Increasing

28

15.2

77.1

7.7

Wages and Benefits

24.9

32.9

–8.0

Increasing

112

26.1

72.7

1.2

Employment

15.9

23.9

–8.0

Increasing

23

22.7

70.5

6.8

Hours Worked

4.9

6.5

–1.6

Increasing

25

15.1

74.7

10.2

Capital Expenditures

9.2

24.5

–15.3

Increasing

27

17.2

74.8

8.0

General Business Conditions
Current (versus previous month)
Indicator Nov Index Oct Index Change Indicator Direction* Trend** (Months) % Reporting Improved % Reporting
No Change
% Reporting Worsened

Company Outlook

13.7

25.0

–11.3

Improving

27

21.3

71.1

7.6

General Business Activity

17.6

29.4

–11.8

Improving

25

25.2

67.2

7.6

Indicator Nov Index Oct Index Change Indicator Direction* Trend** (Months) % Reporting Increase % Reporting
No Change
% Reporting Decrease

Outlook Uncertainty†

12.3

6.9

+5.4

Increasing

6

21.9

68.4

9.6

Business Indicators Relating to Facilities and Products in Texas
Future (six months ahead)
Indicator Nov Index Oct Index Change Indicator Direction Trend* (Months) % Reporting Increase % Reporting
No Change
% Reporting Decrease

Production

52.9

47.9

+5.0

Increasing

117

58.2

36.5

5.3

Capacity Utilization

43.4

38.9

+4.5

Increasing

117

49.3

44.7

5.9

New Orders

47.8

46.1

+1.7

Increasing

117

53.3

41.2

5.5

Growth Rate of Orders

32.1

36.5

–4.4

Increasing

117

37.0

58.1

4.9

Unfilled Orders

6.9

11.3

–4.4

Increasing

38

15.2

76.5

8.3

Shipments

46.4

51.7

–5.3

Increasing

117

53.5

39.4

7.1

Delivery Time

1.7

9.8

–8.1

Increasing

24

11.6

78.5

9.9

Finished Goods Inventories

3.8

11.3

–7.5

Increasing

13

14.4

75.0

10.6

Prices Paid for Raw Materials

36.2

42.1

–5.9

Increasing

116

41.9

52.4

5.7

Prices Received for Finished Goods

29.2

27.1

+2.1

Increasing

34

35.0

59.2

5.8

Wages and Benefits

44.8

51.4

–6.6

Increasing

174

45.9

53.0

1.1

Employment

42.0

32.8

+9.2

Increasing

72

46.6

48.7

4.6

Hours Worked

9.3

14.3

–5.0

Increasing

30

14.7

79.9

5.4

Capital Expenditures

34.1

28.0

+6.1

Increasing

108

40.9

52.3

6.8

General Business Conditions
Future (six months ahead)
Indicator Nov Index Oct Index Change Indicator Direction* Trend** (Months) % Reporting Increase % Reporting
No Change
% Reporting Worsened

Company Outlook

31.4

37.3

–5.9

Improving

34

37.9

55.6

6.5

General Business Activity

25.7

35.6

–9.9

Improving

30

34.9

55.9

9.2

*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.

November 26, 2018

Production Index

Downloadable chart

November 26, 2018

Comments from Survey Respondents

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

Nonmetallic Mineral Product Manufacturing

  • After a better-than-expected October, November is showing surprising weakness.

Primary Metal Manufacturing

  • The steel and aluminum tariffs are a drag!

Fabricated Metal Product Manufacturing

  • Permanent modular construction is growing with architects, contractors and developers. Long term, this will be a huge growth area for our company and the commercial modular industry.
  • Foreign competition for steel structures continues to be a challenge. With domestic steel prices increasing, foreign markets continue to have an advantage, especially when supplemented by foreign governments. U.S. federal-government-owned utilities continue to buy steel structures from foreign countries.
  • As a manufacturer, we are finally getting some pricing power. Large corporate customers are used to price reductions, so they are having difficulty accepting the new environment.
  • Customers’ orders are declining as they reduce inventory levels into year-end. Customers providing forecasts for the first quarter of 2019 indicate slightly lower order levels.

Machinery Manufacturing

  • We are starting to experience a slowdown in the tech sector, which accounts for a large percentage of our business. We are not yet sure if this slowdown is being caused by the China tariffs or the cyclical nature of the tech sector.
  • Tariffs are bad. Tariff waivers for preferred companies, a.k.a. picking winners, is also bad.
  • I feel good about the overall business outlook.

Computer and Electronic Product Manufacturing

  • We believe harsh politics will spill over into the current economy, causing uncertainty and investment pullback.
  • Most markets slowed as the third quarter developed, and we expect the fourth quarter to be well below normal seasonal levels. Uncertainty around trade/tariffs is likely part of the recent change, but our industry has been running above long-term trends for almost two years.

Electrical Equipment, Appliance and Component Manufacturing

  • Things have been rolling along quite well in the overall construction industry and our building wire market for the last few years. It has been really good the last two years, and we think that should continue through next year. Our conversations with our distributor customers and their electrical contractor customers indicate a backlog of big construction projects for at least 15 months out. Our biggest issue is finding enough electricians to do the work. Some “genius” told everyone to go to college 40 years ago and now the average electrician is 56 years old. Same with other trades. This is a huge problem. Also, these workers make more money than many people with college degrees.
  • The current U.S. trade policies are causing customers to rethink longer-term purchases due to trade war concerns and the impact of tariffs on virtually all imported raw materials. Tariffs on imported raw materials are making U.S. exports less competitive.

Transportation Equipment Manufacturing

  • Competition for and turnover of qualified aviation and engine mechanics adds to costs—it takes three to six months for a new hire to reach full efficiency—in addition to the wage increases and retention bonuses we put in place to reduce turnover.
  • The seemingly weekly vendor price increases make it very hard to forecast future orders. Hopefully, we found the ceiling and can calm our dealers against any further increases.
  • We have plans to increase line products and change our sales network. We have to improve efficiency and offset material increases as we can’t realistically raise wholesale/retail prices.
  • Trade issues create a level of uncertainty for us as we face potential pricing and supply issues on aluminum and any items we buy that use source components from China. Changes at the congressional level may end up creating excessive friction for companies as well as fostering an anti-business bias among House Democrats looking to promote a progressive agenda. A potential drop in oil prices due to oversupply is troubling given what happened to the Texas economy the last time prices pulled back.
  • Constant conflicting information from D.C. regarding tariffs, etc., has confused our planning process dramatically.

Textile Product Mills

  • Thanks to some great marketing opportunities, we have a very optimistic outlook for the future.

Wood Product Manufacturing

  • We sell to homebuilders in Dallas–Fort Worth. Rising costs, rising mortgage rates, labor shortages, etc., will not dampen activity over the next six months. Activity will continue at the current pace, but houses will shrink in size and the price per square foot will fall.

Miscellaneous Manufacturing

  • We would like to see improvements in economic relations with China and Russia. We should be doing more business with each other, not less. Better economic ties would improve the political situation in the long run. However, we support President Trump’s efforts to balance the trade policies but wish for success quickly.

 

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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