Pace Of Texas Manufacturing Expansion Slows, But Outlook Improves

Texas factory activity continued to expand in October, 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, fell nine points to 4.5, suggesting a moderation in output growth in October.

Other measures of manufacturing activity also suggested slower expansion in October, and demand declined. The new orders index turned negative for the first time in three years, falling 11 points to -4.2.

The growth rate of orders index also fell into negative territory, coming in at -5.9. The capacity utilization index retreated from 12.0 to 3.6, reaching a three-year low. The shipments index fell nine points to 6.0.

Perceptions of broader business conditions were mixed in October. The general business activity index fell from 1.5 to -5.1, returning to negative territory after two months of positive readings.

The company outlook index continued to increase, inching up to 8.8 this month. The index measuring uncertainty regarding companies’ outlooks remained slightly elevated at 12.1.

Labor market measures suggested slower growth in employment and work hours this month. The employment index remained positive but retreated from 18.8 to 11.0, a reading still above average.

Twenty percent of firms noted net hiring, while 9 percent noted net layoffs. The hours worked index edged down to 4.7.

Price and wage pressures rose in October. The raw materials prices index ticked up to 22.8, a 10-month high. The finished goods prices index pushed up to 4.8 after oscillating around zero for five months. The wages and benefits index  moved up five points to 22.2.

Expectations regarding future business conditions were more optimistic in October. The index of future general business activity returned to positive territory, rising nine points to 2.4.

The index of future company outlook rose 13 points to 15.3, its highest level in six months. Other indexes for future manufacturing activity also rose, pushing further into positive territory.

What’s New This Month

For this month’s survey, Texas business executives were asked supplemental questions on borrowing conditions and credit availability.

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.

Data were collected Oct. 15–23, and 110 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.

Source: Federal Reserve Bank of Dallas

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