Dallas Fed: Texas manufacturing activity stabilizes in June; firms expect easing in wage and price pressures

DALLAS—Texas manufacturing activity was flat in June after vacillating between mild expansion and mild contraction in recent months, according to business executives responding to the Texas Manufacturing Outlook Survey.

“New orders have been declining for most of the year but stabilized, and employment fell slightly on net,” said Emily Kerr, senior business economist at the Dallas Fed. “Firms’ perceptions of broader business conditions continued to worsen in June, though they were less negative than in May.”

Key takeaways from this month’s survey:

• The production index inched up to 0.7 from -2.8.
• The new orders index remained slightly negative, though it has moved up steadily over the past few months to -1.3 from -11.8 in March.
• Labor market measures suggested slight employment declines and shorter workweeks this month.
• Upward pressure on prices and wages continued.
• The general business activity index pushed up to -15.1 from -19.4, and the company outlook index rose seven points to -6.9.

The Dallas Fed asked a series of special questions on wages, prices, capital expenditures, outlook concerns and supply-chain disruptions in the Texas Business Outlook Surveys and heard back from 348 business executives (services and manufacturing) June 10–18.

Texas firms report that wage and input price growth is holding fairly steady at just under 5 percent (12-month change).

Service sector selling price growth decelerated slightly from the March reading, now at 3 percent, while selling price growth picked up notably in the manufacturing sector and to a lesser extent in retail.

“Firms expect easing in wage and price pressures over the next 12 months,” Kerr said. “When asked about concerns around their firm’s outlook, business executives continued to cite weakening demand as their number one concern. Domestic policy uncertainty and elevated inflation were also top concerns.”

Key takeaways from the special questions:

• On average, responding firms saw a 4.9 percent increase in wages over the past 12 months and expect wage growth of 3.5 percent over the next 12 months. For input cost growth, the average was 4.9 percent (past 12 months) and 3.7 percent (next 12 months). For selling price growth, the average was 3.2 percent and 2.8 percent, respectively.
• Thirty-seven percent of firms expect their capital expenditures this year to be higher than last year—more than the 27 percent share expecting lower.
• Forty-five percent of firms noted weakening demand/potential recession as a primary concern for their firm’s outlook, down from 55 percent a year ago. The share citing labor shortages, higher labor costs, higher interest rates and supply-chain disruptions also fell from a year ago, while an increase was seen in the share citing geopolitical and increased taxes and regulation.
• Thirteen percent of firms are experiencing supply-chain disruptions or delays, down from a peak of 70 percent in November 2021.

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