April 2006

Texas is important to the nation’s manufacturing. The state produced $98 billion worth of manufactured goods in 2003, roughly 7 percent of total U.S. output. Texas ranks second behind California in factory production and first as an exporter of manufactured products. Texas turns out a large share of U.S. production of petroleum and coal products, reflecting the muscular refining industry. Texas also has nearly 10 percent of the nation’s output of computer and electronics products and nonmetallic mineral products, such as brick, glass and cement.

Factory Activity Expands at a Slower Pace
Factory activity expanded at a slower pace in April, according to firms responding to the Texas Manufacturing Outlook Survey. Indexes for production, capacity utilization, volume of new orders and shipments all increased at a weaker pace over the previous month. The general business activity index also grew more slowly in April.

Most firms reported an increase in prices paid for raw materials in April. The index for prices received for finished goods was roughly unchanged from the prior month. Most manufacturers expect prices for raw materials to be higher six months from now. The majority of respondents also reported that the outlook for their company six months from now has improved.

Activity Increases
Indexes for production, capacity utilization and shipments drifted lower in April after rising sharply earlier this year. All three indexes continue to signal expansion, with more manufacturers reporting increasing activity than decreasing. Most manufacturers cited no change in production in April, but 42 percent said that production increased over the previous month. Only 12 percent reported a decrease in April.

The index for general business activity was slightly lower in April. Fifty-seven percent of respondents reported no change in their evaluation of the level of general business activity. Thirty-seven percent of responding manufacturers said their evaluation of general business activity had improved since March, while 6 percent said their evaluation of activity had worsened.

Business executives are optimistic about activity six months from now, and index values are slightly higher for both the future company outlook and level of general business activity. Fifty-two percent of responding firms expect improved company outlook six months from now, and only 5 percent believe their company outlook has worsened.

Raw Materials Price Pressures Intensify
Index values for raw materials prices increased, both for the current period and for expectations of prices six months from now. Fifty-two percent of responding firms said they had an increase in the prices paid for raw materials in April. Six percent reported a decrease in raw materials prices.

Fewer firms (28 percent) reported an increase in prices received for finished goods in April. Most firms (58 percent) reported no change in finished goods prices. Responding manufacturers expect prices received for finished goods to be higher six months from now. The index value for future prices received increased from 31.4 in March to 39.4 in April. The majority of firms (49 percent) expect no change in prices received for finished goods six months from now, while 46 percent expect an increase in prices received.

Questions regarding the Texas Manufacturing Outlook Survey can be addressed to Fiona Sigalla at Fiona.Sigalla@dal.frb.org or 214-922-5166. Note The Texas Manufacturing Outlook Survey does not yet have a sufficiently large sample size to permit seasonal adjustment of the indexes. Thus, while respondents are asked to adjust for normal seasonal variation, the month-to-month values of these indexes may include some normal seasonal variation that is not indicative of changes in the business cycle. Other Federal Reserve Bank business outlook indexes benefit from seasonal adjustment, and the Texas indexes will be seasonally adjusted when a sufficient series are available.