Texas Manufacturing Recovery Continues

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.

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.