Dallas Fed: Texas manufacturing activity grows in December; some firms pass through cost increases in anticipation of higher tariff

DALLAS—The Texas manufacturing sector saw a slight increase in production in December, according to business executives responding to the Texas Manufacturing Outlook Survey.

“Labor market measures suggested employment and workweeks held steady,” said Isabel Brizuela, a business economist at the Dallas Fed. “Upward pressure on raw material prices eased, and selling prices dipped.”

Key takeaways from this month’s Texas Manufacturing Outlook Survey: 

• The production index rose to 3.9 from a near-zero reading last month.
• The employment index fell five points to zero.
• The hours worked index held steady at a near-zero reading.
• The raw materials prices index plunged 18 points to 10.5, its lowest reading in 17 months.
• The finished goods prices index also dropped, falling 12 points to -3.4, its first negative reading since late 2023.

Some Texas businesses expect to pass tariff costs on

From Dec. 16–24, the Dallas Fed asked a series of special questions on wages, prices, outlook concerns, employment, and tariffs in the Texas Business Outlook Surveys and heard back from 347 business executives.

Key takeaways:  

• Over half (56 percent) of contacts indicated they were not taking any action in anticipation of potentially higher tariffs next year, while 28 percent of firms indicated they were passing anticipated cost increases through to customers. A larger share of manufacturers (43 percent) than service sector firms (23 percent) reported they were passing anticipated cost increases through to customers.
• On average, firms saw wages increase 4.3 percent over the past 12 months and expect wage growth of 3.9 percent over the next 12 months. Input costs grew on average 4.0 percent (past 12 months) and are expected to grow 3.6 percent in the next 12 months. Selling prices grew on average 2.5 percent in the past 12 months, but firms expect price growth of 3.1 percent in the coming 12 months.
• Although next year’s input price and wage pressures are still expected to be lower than in 2024, firms have revised up expected price and wage growth from September when this question was last asked. 
• The share of firms citing domestic policy uncertainty and level of demand as primary concerns for their firm's outlook declined from September. Meanwhile, the share citing input costs/inflation as a primary concern increased to 35 percent from 28 percent in September, making it the second-most-selected concern for firms.
• The share of firms who reported being short staffed was 49 percent, up slightly from 46 percent in August, though still down from 63 percent in fall 2022. The fraction of firms who indicated they were overstaffed and laying off workers remained low at 2 percent.

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