Texas manufacturing continues to expand in June, says Dallas Fed survey

For Immediate Release: June 25, 2018

DALLAS—Texas factory activity continued to expand in June, albeit at a slower pace than in May, according to the Federal Reserve Bank of Dallas’ Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, fell 12 points to 23.3, signaling a deceleration in output growth.

“This was another strong report for the Texas manufacturing sector,” said Emily Kerr, Dallas Fed senior business economist. “Although output growth eased a bit this month, it remained solid, and forward-looking indicators like new orders and company outlooks rose. Cost increases picked up pace rather notably, with firms citing steel and aluminum tariffs as a key driver.”

This month, business executives from both manufacturing and service sector firms were asked special questions on technology, employment expectations and pricing power. Responses revealed:

• Among executives surveyed, 48.6 percent said they do not expect the adoption of new technologies to impact their firms’ need for workers over the next five years, while 24.7 percent expect changes to the type of workers needed but not the number. A little over 14 percent expect technology to decrease their need for workers, while about 12 percent expect it to increase their need for workers.
• Overall, over 65 percent of firms expect to increase employment over the next five years, while 9.0 percent expect to decrease employment.
• Communications platforms and social media topped the list of technologies already adopted at 64.6 percent. Among the technologies firms plan to adopt, artificial intelligence, 3D scanning, biometric authentication, blockchain and 3D printing were the most common.

Here are some additional key takeaways from this month’s manufacturing report:
Other indexes of manufacturing activity indicated slower growth in June. The capacity utilization and shipments indexes posted double-digit declines, falling to 21.7 and 25.5, respectively. However, demand improved further in June as the new orders index edged up to 29.6, its highest level this year.

Perceptions of broader business conditions were even more positive in June than May. The general business activity index rose 10 points to 36.5, and the company outlook index rose five points to 33.2, its highest reading since 2006.

Labor market measures continued to suggest growth. The employment index stayed near last month’s six-year high at 23.9. The hours worked index remained highly positive but edged down to 20.2.

Price and wage pressures increased markedly. The raw materials prices index rose 10 points to 53.6, its highest reading since 2011. The finished goods prices index moved up to a 10-year high of 26.2. Compensation costs also accelerated, with the wages and benefits index rising seven points to 31.4.

Texas produces more than 11 percent of total manufactured goods in the United States, ranking second behind California in factory production.

The Dallas Fed conducts the Texas Manufacturing Outlook Survey monthly to obtain a timely assessment of the state’s factory activity.

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Media contact:
Jennifer Chamberlain
Federal Reserve Bank of Dallas
Phone: (214) 922-6748
E-mail: jennifer.chamberlain@dal.frb.org