Dallas Fed: Texas manufacturing output remains flat as sector continues to face declining orders

May 30, 2023

DALLAS—Texas factory activity remained relatively flat in May, according to business executives responding to the Texas Manufacturing Outlook Survey.

“The lull in output growth continues in the Texas manufacturing sector, and new orders have now been declining for a year,” said Emily Kerr, senior business economist at the Dallas Fed. “Employment growth continues, however. A notable easing in price and wage pressures was seen this month, though wage pressures remain elevated.”

Key takeaways from this month’s survey:

• The production index inched down from 0.9 to -1.3, with the near-zero reading suggestive of little change in output from last month.
• The new orders index pushed down further from -9.6 to -16.1.
• Labor market measures suggest continued employment growth but flat work hours.
• Price pressures dropped further below normal levels, and wage pressures also eased but remained elevated.
• The general business activity index dropped six points to -29.1, its lowest reading in three years.
• The company outlook index pushed down seven points to -22.3, also a three-year low.

The Dallas Fed asked a series of special questions on prices and wages in our May Texas Business Outlook Surveys and heard back from 387 business executives (services and manufacturing) May 16–24.

“Expectations for growth in input and selling prices this year declined notably from what Texas firms reported at year-end 2022, while wage growth expectations moderated only slightly,” Kerr said. “Wage growth is highest in the service sector, with responding firms projecting an increase of 5.5 percent in 2023, on average.”

Key takeaways from the special questions:

• Firms expect a 4.7 percent increase in input prices this year and a 5.3 percent increase in wages, on average.
• Overall, firms expect to raise selling prices 3.8 percent this year, on average.
• Nine percent of firms surveyed expect a decrease in their selling prices this year, with the majority citing lower demand as the primary driver.
• Thirty-four percent of firms are able to pass along most or all of their higher costs to customers, up from 28 percent last November.
• Respondents were quite split on whether their firm’s ability to pass increased costs on to customers has gotten easier or harder over the last six months, though more said harder.

For more information visit DallasFed.org.

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Media contact:
Jon Prior
Federal Reserve Bank of Dallas
Phone: 214-922-6857
Email: jon.prior@dal.frb.org