Texas Economy

Texas Manufacturing Outlook Survey

September 25, 2017

Growth in Texas Manufacturing Activity Holds Steady

What's New This Month

For this month’s survey, Texas business executives were asked supplemental questions on the impact from Hurricane Harvey. Results for these questions from the Texas Manufacturing Outlook Survey (TMOS), Texas Service Sector Outlook Survey (TSSOS) and Texas Retail Outlook Survey (TROS) have been released together. Read the Special Questions results.

Texas factory activity continued to increase in September, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, edged down to 19.5 from 20.3 in August, indicating output grew at about the same pace as last month.

Other measures of current manufacturing activity also indicated continued growth. The new orders index increased and the growth rate of orders index ticked down but stayed positive, coming in at 18.6 and 9.7, respectively. The capacity utilization index edged up four points to 15.8, while the shipments index jumped nine points to 27.4.

Perceptions of broader business conditions improved in September. The general business activity index increased to 21.3, its highest reading in seven months. The company outlook index posted its 13th consecutive positive reading, jumping nine points to 25.6.

Labor market measures suggested faster employment growth and longer workweeks this month. The employment index came in at 16.3, its highest level since April 2014. Twenty-eight percent of firms noted net hiring, compared with 11 percent noting net layoffs. The hours worked index rose four points to 18.4.

Upward pressure on prices increased, while wage pressures held steady in September. The raw materials prices index pushed up eight points to 34.5, its highest reading since July 2011. The finished goods prices index climbed seven points to 17.5, its highest level in seven months. The wages and benefits index was essentially unchanged at 26.4.

Expectations regarding future business conditions continued to improve. The indexes of future general business activity and future company outlook remained elevated at 34.5 and 39.9, respectively. Other indexes for future manufacturing activity showed mixed movements but remained solidly in positive territory.

Next release: Monday, October 30

Data were collected Sept. 12–20, and 111 Texas manufacturers responded to the survey. The Dallas Fed conducts the Texas Manufacturing Outlook Survey monthly to obtain a timely assessment of the state’s factory activity. Firms are asked whether output, employment, orders, prices and other indicators increased, decreased or remained unchanged over the previous month.

Survey responses are used to calculate an index for each indicator. Each index is calculated by subtracting the percentage of respondents reporting a decrease from the percentage reporting an increase. When the share of firms reporting an increase exceeds the share reporting a decrease, the index will be greater than zero, suggesting the indicator has increased over the prior month. If the share of firms reporting a decrease exceeds the share reporting an increase, the index will be below zero, suggesting the indicator has decreased over the prior month. An index will be zero when the number of firms reporting an increase is equal to the number of firms reporting a decrease. Data have been seasonally adjusted as necessary.

September 25, 2017

Results Summary

Business Indicators Relating to Facilities and Products in Texas Current (versus previous month)
Indicator	Sep Index	Aug Index	Change	Indicator Direction*	Trend** (Months)	% Reporting Increase	% Reporting No Change	% Reporting Decrease
Production	19.5	20.3	–0.8	Increasing	15	36.0	47.5	16.5
Capacity Utilization	15.8	12.2	+3.6	Increasing	15	31.8	52.2	16.0
New Orders	18.6	14.3	+4.3	Increasing	11	37.3	44.1	18.7
Growth Rate of Orders	9.7	11.7	–2.0	Increasing	9	26.4	56.9	16.7
Unfilled Orders	8.1	0.2	+7.9	Increasing	9	21.1	65.9	13.0
Shipments	27.4	18.1	+9.3	Increasing	10	41.4	44.6	14.0
Delivery Time	10.1	0.5	+9.6	Increasing	3	15.7	78.7	5.6
Materials Inventories	3.9	2.5	+1.4	Increasing	3	22.9	58.2	19.0
Finished Goods Inventories	–4.5	–3.8	–0.7	Decreasing	5	15.5	64.5	20.0
Prices Paid for Raw Materials	34.5	26.9	+7.6	Increasing	19	35.1	64.3	0.6
Prices Received for Finished Goods	17.5	10.2	+7.3	Increasing	14	21.3	74.9	3.8
Wages and Benefits	26.4	26.9	–0.5	Increasing	94	27.6	71.2	1.2
Employment	16.3	9.9	+6.4	Increasing	9	27.7	60.9	11.4
Hours Worked	18.4	14.5	+3.9	Increasing	11	27.9	62.6	9.5
Capital Expenditures	13.6	14.5	–0.9	Increasing	13	19.2	75.2	5.6

General Business Conditions Current (versus previous month)
Indicator	Sep Index	Aug Index	Change	Indicator Direction*	Trend** (Months)	% Reporting Improved	% Reporting No Change	% Reporting Worsened
Company Outlook	25.6	16.3	+9.3	Improving	13	33.9	57.8	8.3
General Business Activity	21.3	17.0	+4.3	Improving	12	30.3	60.7	9.0

Business Indicators Relating to Facilities and Products in Texas Future (six months ahead)
Indicator	Sep Index	Aug Index	Change	Indicator Direction*	Trend** (Months)	% Reporting Increase	% Reporting No Change	% Reporting Decrease
Production	46.5	43.1	+3.4	Increasing	103	55.2	36.1	8.7
Capacity Utilization	44.9	38.6	+6.3	Increasing	103	53.5	37.9	8.6
New Orders	48.7	48.6	+0.1	Increasing	103	53.9	40.9	5.2
Growth Rate of Orders	35.8	37.1	–1.3	Increasing	103	42.1	51.6	6.3
Unfilled Orders	9.7	6.7	+3.0	Increasing	24	17.5	74.7	7.8
Shipments	47.8	41.8	+6.0	Increasing	103	55.6	36.6	7.8
Delivery Time	1.0	2.1	–1.1	Increasing	10	11.5	78.0	10.5
Materials Inventories	10.8	12.0	–1.2	Increasing	10	26.4	58.0	15.6
Finished Goods Inventories	10.5	–2.0	+12.5	Increasing	1	23.8	62.9	13.3
Prices Paid for Raw Materials	35.9	26.0	+9.9	Increasing	102	40.6	54.7	4.7
Prices Received for Finished Goods	20.0	17.0	+3.0	Increasing	20	27.6	64.8	7.6
Wages and Benefits	39.8	44.3	–4.5	Increasing	160	40.4	59.0	0.6
Employment	41.3	30.8	+10.5	Increasing	58	45.1	51.1	3.8
Hours Worked	17.2	11.8	+5.4	Increasing	16	20.9	75.4	3.7
Capital Expenditures	29.8	19.6	+10.2	Increasing	94	34.6	60.6	4.8

General Business Conditions Future (six months ahead)
Indicator	Sep Index	Aug Index	Change	Indicator Direction*	Trend** (Months)	% Reporting Increase	% Reporting No Change	% Reporting Worsened
Company Outlook	39.9	34.5	+5.4	Improving	20	44.1	51.7	4.2
General Business Activity	34.5	29.2	+5.3	Improving	16	39.0	56.5	4.5

*Indicator direction refers to this month's index. If index is positive (negative), indicator is increasing (decreasing) or improving (worsening). If zero, indicator is unchanged.

**Number of months moving in current direction.

Data have been seasonally adjusted as necessary.

September 25, 2017

Production Index

September 25, 2017

Comments from Survey Respondents

These comments are from respondents' completed surveys and have been edited for publication.

Chemical Manufacturing

Hurricane Harvey resulted in increased raw material costs and increased inventory. We expect raw material prices to stay elevated for about six months and then eventually settle back down, but not to the pre-hurricane level, possibly 50 percent of the difference.
Harvey did not impact our assets located in Louisiana but did materially slow logistics (rail, barge, truck) assets in Southwest Louisiana and Southeast Texas to service our plants in Louisiana. This slowed delivery of product to our customers. Lower production in Texas due to the storm coupled with solid demand caused product prices to rise. We also saw some energy-based feedstock prices rise in the same period.
Hurricane Harvey is affecting delivery and availability of raw materials. This may take a few more weeks to resolve.

Nonmetallic Mineral Product Manufacturing

We lost approximately seven days of production due to Hurricane Harvey. We are fully back online.

Primary Metal Manufacturing

We may see an increase in business in our building and construction products related to the recent weather in Texas and Florida.
The level of new starts in construction has already peaked and is on a slight decline. It is still good but declining from past months.

Fabricated Metal Product Manufacturing

The storm caused the need for repairs in the refinery. This backlog of field and shop work repairs will last 30 to 60 days. We cannot hire enough qualified people to fill the need for this time period.
Hurricane destruction will slow growth for a short period, and then recovery will increase growth.
Harvey shut us down for a few days, but we did not sustain any damage. Business is good.
Harvey seriously impacted our facilities, employees and customers, shutting us down for two weeks. Turnaround maintenance work has been pushed into next year, leaving a hole for us to fill.
Current orders and available projections from customers for the rest of 2017 reflect a mixed picture: a slight pickup in the energy sector, a new-product launch with a key customer, flat industrial sector volume and slight order pushbacks from another key customer. Overall, we see a slightly improving trend for the remainder of 2017, but we have no visibility into 2018.
Currently, the largest hindrance to continued construction growth is the availability of trained construction labor.

Machinery Manufacturing

This past quarter, our overall sales decreased by 20 percent. We have a reasonable forecast for the next quarter and early 2018, but a cloud still looms over our industry (deep-sea drilling).

Computer and Electronic Product Manufacturing

Demand is stronger than end markets, which may be due partly to softness in the past few years. We would not be surprised if we saw a correction in the next six months, but we could put together a scenario where we grow for the next three years.

Transportation Equipment Manufacturing

Fortunately, we only had minor issues due to Hurricane Harvey, and those were mostly related to some employees not being able to make it in to work as the floodwaters receded. We did experience some material delays due to shipping issues. We also narrowly avoided a major component issue as one of our key suppliers was right in the path of Hurricane Irma. They also only had minor issues and were able to get product out to us shortly after the storm passed. Our expectation that tax receipts would begin to increase and flow through to us as new orders is coming to fruition slightly earlier than we anticipated—thus, the improved outlook for this month over last and for the foreseeable future.
We are in our slow season.

Food Manufacturing

We are having issues with our North American production due to a shortage of labor and are transferring more production to China.
The bulk of our sales are centered around Houston, Austin and San Antonio. The hurricane directly affected our sales in these areas.

Paper Manufacturing

We are experiencing a good uptick in orders for our busy season (August-November). We don’t know if it will last, but it’s good at this time.

Printing and Related Support Activities

Hurricane Harvey seriously damaged the Southeast Texas business community. Already negatively affected by the general downturn of the oil business and, for us, the printing and USPS mail volume decline, the hurricanes hitting Houston (and shortly afterwards, Florida) have been an economic disaster for local small businesses. The situation is sadly reminiscent of the weeks following the 9/11 attack. Marketers and businesses locally are hesitant to gear back up.
The hurricane impact in Houston and Louisiana has caused interruption of plastic packaging film supplies, causing short-term price increases due to supply/demand imbalances. Labor shortages continue to crop up, with the quality of the available workforce in the metroplex reaching levels (low) not seen since 1999–2000.
We remain very concerned about the midterm to long-term health of the economy as it pertains to our industry. We are getting much busier, but that is the norm for this time of the year. I am worried about what four to six months will look like, activity wise.

Miscellaneous Manufacturing

There is a labor shortage in Central Texas. We are unable to find qualified candidates. This is a factor among most Austin manufacturers I speak with.

Historical Data

Historical data can be downloaded dating back to June 2004.

Indexes

Download indexes for all indicators. For the definitions of all variables, see Data Definitions.

Unadjusted

Seasonally adjusted

All Data

Download indexes and components of the indexes (percentage of respondents reporting increase, decrease, or no change). For the definitions of all variables, see Data Definitions.

Unadjusted

Seasonally adjusted

Questions regarding the Texas Manufacturing Outlook Survey can be addressed to Emily Kerr at emily.kerr@dal.frb.org.