Dallas Fed: Texas manufacturing activity falters amid tariffs, immigration uncertainty

DALLAS—Texas factory activity fell in February after rising notably in January, according to business executives responding to the Texas Manufacturing Outlook Survey.

“A pullback was seen in Texas factory activity in February, with manufacturing executives noting mounting uncertainty, primarily regarding tariff policy,” said Emily Kerr, senior business economist at the Dallas Fed. “Employment levels were stable, though work hours declined. Raw materials prices rose at a notably faster pace this month. Outlooks worsened slightly, though expectations are still for increased manufacturing activity six months from now.”

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

• The production index fell 21 points to -9.1.
• The new orders index fell 11 points to -3.5.
• Labor market measures suggested flat head counts and shorter workweeks this month.
• Input cost pressures intensified in February, while wage pressures retreated slightly.
• The general business activity and company outlook indexes tumbled into negative territory.

An increased reliance on workers from other states, countries

From Feb. 11–19, the Dallas Fed asked a series of special questions on demand, labor and U.S. trade policy in the Texas Business Outlook Surveys and heard back from 327 business executives (services and manufacturing).

“We asked firms to comment on how U.S. trade policy uncertainty and tariffs are impacting their business, if at all—many cited higher costs and some are seeing a slowdown in business activity,” Kerr said.

Key takeaways:

• Over the past year, about a third of firms have relied on hiring workers who moved to Texas from a different U.S. state, and about a quarter relied on hiring workers who moved to Texas from another country.
• Among firms that reported relying on workers from other states or countries, reliance increased over the past year on net, particularly for immigrant workers.
• Eighteen percent of firms expect changes to immigration policy to impact their ability to hire and retain workers this year, and many plan to increase worker utilization or cross training and implement labor-saving technology in response.
• Most Texas businesses expect demand for their goods and/or services to increase over the next six months. In services, demand expectations were quite similar to when firms were last asked in November. Expectations pushed notably more positive in retail, and optimism waned somewhat in manufacturing.

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