Texas Economy

Texas Manufacturing Outlook Survey

June 25, 2018

Texas Manufacturing Continues to Expand, Outlook Improves

What’s New This Month

For this month’s survey, Texas business executives were asked supplemental questions on technology, employment expectations and pricing power. 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.

The expansion in Texas factory activity continued in June, albeit at a slower pace than in May, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, declined 12 points to 23.3, signaling a deceleration in output growth.

Some other indexes of manufacturing activity also indicated slower growth in June. The capacity utilization and shipments indexes posted double-digit declines, falling to 21.7 and 25.5, respectively. However, demand improved further in June as the new orders index edged up to 29.6, its highest level this year.

Perceptions of broader business conditions were even more positive in June than in May. The general business activity index rose 10 points to 36.5, and the company outlook index rose five points to 33.2, its highest reading since 2006.

Labor market measures suggested robust growth in employment and longer work hours in June. The employment index stayed near last month’s six-year high at 23.9. Thirty-one percent of firms noted net hiring, compared with 7 percent noting net layoffs. The hours worked index remained highly positive but edged down to 20.2.

Price and wage pressures increased markedly in June. The raw materials prices index rose 10 points to 53.6, its highest reading since 2011. The finished goods prices index moved up to a 10-year high of 26.2. Compensation costs also accelerated, with the wages and benefits index rising seven points to 31.4.

Expectations regarding future business conditions remained largely optimistic in June. The indexes of future general business activity and future company outlook moved up to 35.9 and 38.7, respectively, with both readings significantly above average. Other indexes of future manufacturing activity showed mixed movements but remained in solidly positive territory.

Next release: Monday, July 30

Data were collected June 12–20, and 104 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.

June 25, 2018

Results Summary

Business Indicators Relating to Facilities and Products in Texas Current (versus previous month)
Indicator	Jun Index	May Index	Change	Indicator Direction*	Trend** (Months)	% Reporting Increase	% Reporting No Change	% Reporting Decrease
Production	23.3	35.2	–11.9	Increasing	24	38.4	46.6	15.1
Capacity Utilization	21.7	32.2	–10.5	Increasing	24	35.6	50.5	13.9
New Orders	29.6	27.7	+1.9	Increasing	20	44.0	41.5	14.4
Growth Rate of Orders	22.2	26.5	–4.3	Increasing	18	35.2	51.8	13.0
Unfilled Orders	13.0	4.1	+8.9	Increasing	15	25.5	62.0	12.5
Shipments	25.5	39.5	–14.0	Increasing	19	41.9	41.7	16.4
Delivery Time	15.9	10.2	+5.7	Increasing	12	23.4	69.1	7.5
Finished Goods Inventories	5.8	–6.6	+12.4	Increasing	1	22.1	61.5	16.3
Prices Paid for Raw Materials	53.6	44.0	+9.6	Increasing	28	54.1	45.4	0.5
Prices Received for Finished Goods	26.2	20.5	+5.7	Increasing	23	28.0	70.2	1.8
Wages and Benefits	31.4	24.3	+7.1	Increasing	107	32.5	66.4	1.1
Employment	23.9	23.4	+0.5	Increasing	18	30.9	62.1	7.0
Hours Worked	20.2	23.2	–3.0	Increasing	20	31.5	57.2	11.3
Capital Expenditures	23.8	21.7	+2.1	Increasing	22	29.5	64.8	5.7

General Business Conditions Current (versus previous month)
Indicator	Jun Index	May Index	Change	Indicator Direction*	Trend** (Months)	% Reporting Improved	% Reporting No Change	% Reporting Worsened
Company Outlook	33.2	28.0	+5.2	Improving	22	38.3	56.6	5.1
General Business Activity	36.5	26.8	+9.7	Improving	20	43.3	49.9	6.8


Indicator	Jun Index	May Index	Change	Indicator Direction*	Trend** (Months)	% Reporting Increase	% Reporting No Change	% Reporting Decrease
Outlook Uncertainty†	7.9	–2.9	+10.8	Increasing	1	17.8	72.3	9.9

Business Indicators Relating to Facilities and Products in Texas Future (six months ahead)
Indicator	Jun Index	May Index	Change	Indicator Direction	Trend* (Months)	% Reporting Increase	% Reporting No Change	% Reporting Decrease
Production	47.9	58.0	–10.1	Increasing	112	52.0	43.9	4.1
Capacity Utilization	46.5	51.0	–4.5	Increasing	112	49.9	46.7	3.4
New Orders	47.0	48.5	–1.5	Increasing	112	50.2	46.6	3.2
Growth Rate of Orders	37.7	37.7	0.0	Increasing	112	42.0	53.7	4.3
Unfilled Orders	24.5	13.8	+10.7	Increasing	33	28.2	68.1	3.7
Shipments	43.9	49.2	–5.3	Increasing	112	47.3	49.2	3.4
Delivery Time	6.8	13.4	–6.6	Increasing	19	15.4	76.0	8.6
Finished Goods Inventories	7.2	11.9	–4.7	Increasing	8	17.5	72.2	10.3
Prices Paid for Raw Materials	49.0	51.9	–2.9	Increasing	111	51.0	46.9	2.0
Prices Received for Finished Goods	28.1	27.0	+1.1	Increasing	29	33.3	61.5	5.2
Wages and Benefits	53.2	50.6	+2.6	Increasing	169	54.6	44.0	1.4
Employment	39.8	37.6	+2.2	Increasing	67	43.5	52.8	3.7
Hours Worked	9.7	13.9	–4.2	Increasing	25	18.1	73.5	8.4
Capital Expenditures	33.9	32.2	+1.7	Increasing	103	42.8	48.3	8.9

General Business Conditions Future (six months ahead)
Indicator	Jun Index	May Index	Change	Indicator Direction*	Trend** (Months)	% Reporting Increase	% Reporting No Change	% Reporting Worsened
Company Outlook	38.7	35.2	+3.5	Improving	29	42.2	54.3	3.5
General Business Activity	35.9	30.0	+5.9	Improving	25	41.4	53.1	5.5

*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.

†Added to survey in January 2018.

Data have been seasonally adjusted as necessary, with the exception of the outlook uncertainty index, which does not yet have a sufficiently long time series to test for seasonality.

June 25, 2018

Production Index

June 25, 2018

Comments from Survey Respondents

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

Nonmetallic Mineral Product Manufacturing

The price of steel raw materials is causing costs to increase.

Primary Metal Manufacturing

We have experienced continuous growth from all sectors in iron casting sales. The two remaining inhibitors for growth are: 1. The severe lack of workforce in the north central Texas region. Numerous companies in our area are struggling to fill crucial manufacturing positions, and skilled labor is scarce. 2. OSHA’s decision not to stay the economic and technologically infeasible silica rule is creating significant cost impacts on our industry as well as many others. This rule continues to be the largest inhibitor of growth due to the sheer cost of attempting to comply with the new permissible-exposure limits of the rule, as well as the ancillary medical surveillance costs for exposed-employee monitoring.

Fabricated Metal Product Manufacturing

Steel tariffs to NAFTA partners is a mistake. Higher steel prices could slow down strong projects and the manufacturing recovery which started in fourth quarter 2017.
I can’t believe the effect the tariff response has had on the metals trade. Somebody needs their head examined if they think this is good for the American economy.
We are about to raise prices for the first time in six years due to the rising cost of steel and aluminum. That is going to cause some uncertainty, with our customers looking elsewhere to purchase the products we manufacture.

Machinery Manufacturing

There is lots of uncertainty among manufacturers regarding the impact of the steel tariffs. Even steel sourced from the U.S. is rapidly increasing in price due to capacity constraints.
We are operating at the lowest levels of our 70-year history. Chinese imports continue to depress pricing of our products.
Inflationary pressures are of concern. Freight costs per mile are up. Metals are costing more, impacting a large number of purchased parts. Tariff escalation is not going to help.
Business remains strong.
President Trump—trade, tariffs and diplomacy—is leading to more uncertainty.

Computer and Electronic Product Manufacturing

It’s like a switch was turned on in May and orders were abnormally high. June bookings look very positive so far.

Printing and Related Support Activities

The lingering effects of Hurricane Harvey have still impacted our volume. Through May, our volume is down 7 percent from last year at this time.
We are busy now because of a large single order that we entered in May and that is being worked on now and into July. We are feeling the need to raise labor wages, which will require a price increase, but since all our materials seem to be increasing in cost, why should we miss an opportunity to include a small increase to cover rising wages? I am very concerned long term about this goofiness with tariffs and possible foreign-country retaliation. Much of what we use in materials and equipment comes from Europe and a little from Asia.

Food Manufacturing

Tariffs impacting the price of stainless steel are a concern. We also are in an agriculture-related environment, and commodity price increases and stability are of concern.

Apparel Manufacturing

The Army is ordering huge volumes of apparel, which we anticipate will continue for another nine months.

Paper Manufacturing

We see a slight softness in order volume. We will wait and see how July turns out.
We lost a large contract, and it will decrease our production for the short term. We expect to get additional new business to replace it.

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.