Texas Economy

Texas Manufacturing Outlook Survey

April 29, 2019

Growth in Texas Manufacturing Activity Picks Up Slightly

What’s New This Month

For this month’s survey, Texas business executives were asked supplemental questions on revenue, income taxes and drivers of uncertainty. Results for these questions from the Texas Manufacturing Outlook Survey, Texas Service Sector Outlook Survey and Texas Retail Outlook Survey have been released together. Read the Special Questions results.

This month’s data release also includes annual seasonal factor revisions. In April of each year, the Federal Reserve Bank of Dallas revises the historical data for the Texas Manufacturing Outlook Survey after calculating new seasonal adjustment factors. Annual seasonal revisions result in slight changes in the seasonally adjusted series. Read more information on seasonal adjustment.

Texas factory activity continued to expand in April, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, ticked up two points to 12.4, indicating output growth accelerated slightly from March.

Other measures of manufacturing activity also suggested slightly faster expansion in April. The survey’s demand indicators bounced back after dipping last month: The new orders index rose eight points to 9.8, and the growth rate of orders index rose from -2.0 to 5.2. The capacity utilization index pushed to a seven-month high of 15.6, while the shipments index held fairly steady at 6.3.

Perceptions of broader business conditions continued to improve in April. The general business activity index remained positive for a third month in a row but fell five points to 2.0. Meanwhile, the company outlook index climbed two points to 6.3.

Labor market measures suggested weaker employment growth but slightly stronger growth in workweek length in April. The employment index fell eight points to 4.6, its lowest reading since the end of 2016. Nineteen percent of firms noted net hiring, while the share reporting net layoffs rose to 15 percent from 10 percent last month. The hours worked index came in at 8.1, up slightly from March.

Upward pressure on input costs abated somewhat in April, while pressure on selling prices and wages was about the same as it was last month. The raw materials prices index dropped 11 points to 7.9, its lowest reading in three years. The finished goods prices index held steady at 6.0, and the wages and benefits index inched down to 28.2, a still-elevated level.

Expectations regarding future business conditions remained positive in April, although the indexes showed mixed movements. The index of future general business activity remained at its March reading of 18.4, while the index of future company outlook edged up from 18.4 to 20.9. Most other indexes for future manufacturing activity declined this month but stayed in positive territory.

Next release: Tuesday, May 28

Data were collected April 16–24, and 106 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.

April 29, 2019

Results Summary

Business Indicators Relating to Facilities and Products in Texas Current (versus previous month)
Indicator	Apr Index	Mar Index	Change	Indicator Direction*	Trend** (Months)	% Reporting Increase	% Reporting No Change	% Reporting Decrease
Production	12.4	10.5	+1.9	Increasing	34	29.9	52.6	17.5
Capacity Utilization	15.6	9.4	+6.2	Increasing	34	27.8	59.9	12.2
New Orders	9.8	2.2	+7.6	Increasing	30	30.9	48.0	21.1
Growth Rate of Orders	5.2	–2.0	+7.2	Increasing	1	23.5	58.2	18.3
Unfilled Orders	–0.4	–0.4	0.0	Decreasing	5	14.3	71.1	14.7
Shipments	6.3	5.8	+0.5	Increasing	29	27.2	52.0	20.9
Delivery Time	1.6	3.9	–2.3	Increasing	2	13.1	75.4	11.5
Finished Goods Inventories	–5.7	1.7	–7.4	Decreasing	1	13.2	67.9	18.9
Prices Paid for Raw Materials	7.9	18.9	–11.0	Increasing	37	18.4	71.2	10.5
Prices Received for Finished Goods	6.0	6.5	–0.5	Increasing	33	12.7	80.6	6.7
Wages and Benefits	28.2	30.0	–1.8	Increasing	117	31.9	64.4	3.7
Employment	4.6	12.2	–7.6	Increasing	28	19.2	66.2	14.6
Hours Worked	8.1	6.3	+1.8	Increasing	30	20.0	68.1	11.9
Capital Expenditures	18.9	12.2	+6.7	Increasing	32	25.4	68.1	6.5

General Business Conditions Current (versus previous month)
Indicator	Apr Index	Mar Index	Change	Indicator Direction*	Trend** (Months)	% Reporting Improved	% Reporting No Change	% Reporting Worsened
Company Outlook	6.3	4.2	+2.1	Improving	4	21.9	62.5	15.6
General Business Activity	2.0	6.9	–4.9	Improving	3	21.0	60.0	19.0


Indicator	Apr Index	Mar Index	Change	Indicator Direction*	Trend** (Months)	% Reporting Increase	% Reporting No Change	% Reporting Decrease
Outlook Uncertainty†	6.8	3.4	+3.4	Increasing	11	22.5	61.8	15.7

Business Indicators Relating to Facilities and Products in Texas Future (six months ahead)
Indicator	Apr Index	Mar Index	Change	Indicator Direction	Trend* (Months)	% Reporting Increase	% Reporting No Change	% Reporting Decrease
Production	41.3	51.5	–10.2	Increasing	122	49.1	43.1	7.8
Capacity Utilization	40.6	48.2	–7.6	Increasing	122	47.2	46.2	6.6
New Orders	35.9	42.7	–6.8	Increasing	122	43.2	49.4	7.3
Growth Rate of Orders	27.5	32.4	–4.9	Increasing	122	33.9	59.7	6.4
Unfilled Orders	10.0	10.4	–0.4	Increasing	43	19.8	70.4	9.8
Shipments	35.5	44.2	–8.7	Increasing	122	43.6	48.3	8.1
Delivery Time	1.8	10.2	–8.4	Increasing	29	11.9	78.0	10.1
Finished Goods Inventories	–4.1	9.1	–13.2	Decreasing	1	14.1	67.7	18.2
Prices Paid for Raw Materials	14.0	28.2	–14.2	Increasing	121	25.0	64.0	11.0
Prices Received for Finished Goods	8.0	20.0	–12.0	Increasing	39	24.0	60.0	16.0
Wages and Benefits	38.8	54.3	–15.5	Increasing	179	41.3	56.1	2.5
Employment	33.4	37.5	–4.1	Increasing	77	39.5	54.4	6.1
Hours Worked	9.0	14.6	–5.6	Increasing	35	16.7	75.6	7.7
Capital Expenditures	26.2	36.0	–9.8	Increasing	113	30.9	64.3	4.7

General Business Conditions Future (six months ahead)
Indicator	Apr Index	Mar Index	Change	Indicator Direction*	Trend** (Months)	% Reporting Increase	% Reporting No Change	% Reporting Worsened
Company Outlook	20.9	18.4	+2.5	Improving	39	30.5	59.9	9.6
General Business Activity	18.4	18.4	0.0	Improving	35	30.1	58.3	11.7

*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 2019.

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.

April 29, 2019

Production Index

April 29, 2019

Comments from Survey Respondents

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

Primary Metal Manufacturing

There is a general feeling among our customers that even though business is still very good, the level of business will slow down this summer.
The 2020 election cycle uncertainties are beginning to come into play, with several large customers starting to soften forecasts due to uncertainties in the energy and heavy equipment sectors. We typically see this in every presidential cycle; however, this started earlier than anticipated. Overall, the business climate remains somewhat positive but more conservative than expected. A key issue we continue to face is workforce shortages. The entire manufacturing sector faces this issue, and we welcome proposed legislation to boost apprenticeship programs and overall workforce development.

Fabricated Metal Product Manufacturing

We have seen a definite slowdown in many sectors versus fourth quarter 2018, with April being the worst month year to date. This is along with price erosion in the steel world. This has dampened our outlook for 2019.
We are losing business on delivery dates due to not having enough skilled personnel. Fabricators are still being very aggressive on pricing, and margins have decreased significantly as a result.

Nonmetallic Mineral Product Manufacturing

Our system was taken down by a crypto virus. We are in recovery mode.

Machinery Manufacturing

We are bidding and winning more new business since our ability to hire has improved. We are paying more, but it is paying dividends and we are not letting other companies take our trained employees away with higher offers anymore. Also, our employees see a much brighter future with our company and more opportunities to be promoted into better-paying positions. We are adding second shifts that require leaders and new workers. Once the second shifts are fully staffed, we will look at the next step, which is capital expenditures.
Orders are picking up once again. We anticipate another bump in business after the Chinese trade negotiations are completed and a deal is reached.

Electrical Equipment, Appliance and Component Manufacturing

The continued uncertainty surrounding tariffs and the trade wars seems to be fueling customer reluctance to initiate new large projects.

Printing and Related Support Activities

Our company was sold in January. The new owner decided to increase prices. We will lose many of our clients to other competitors because in this market, pricing and quality are most important. I believe our company will go through many changes and some not for the good. I predict that by the end of this year, our company will be reduced to a very small print shop.
We are very surprised and disappointed that we continue to be as slow as we are, and we are not sure what the cause of it is. We have just instituted an increase in our selling prices for the first time in a long time, so hopefully that will start to provide improvement at the bottom line, as all our other costs have increased. Meaningful property tax relief brought on by Austin paying more of the total school cost would be helpful, instead of forcing the local taxing authorities to limit the amount of increase each year. Governmental spending is simply out of control, and tax revenues are the only source of income to feed the beast.

Food Manufacturing

A substantial part of the materials for our operations comes from other countries, including Bulgaria, China and Mexico. We are particularly sensitive to disruption of imports through the Mexican border. All the recent rhetoric on border closings, increased tariffs and other trade conflicts have increased significantly the uncertainty for our business.

Textile Product Mills

We continue to be optimistic and work toward larger orders and bigger customers.

Apparel Manufacturing

Future military apparel orders appear to be increasing in volume.

Paper Manufacturing

Currently, we are like a long-tailed cat in a room full of rocking chairs, and it seems like there are more chairs.

Miscellaneous Manufacturing

When reviewing our financial performance over the last few years, the outlook for the company has significantly improved, in large part due to the change in taxes. During the Obama administration, our effective total-taxes-paid rate was over 70 percent, and now under the Trump administration, our effective total-taxes-paid rate is about 50 percent. This has allowed us to hire more people, increase compensation, pay larger bonuses, purchase more manufacturing equipment and make more investments. For those people who say that lower taxes do not help small and growing businesses, they are completely mistaken. Small and fast-growing businesses need as much after-tax profits for expansion and investments as possible to continue to be successful. If you want the private sector to expand and hire more people, it’s critical we have sufficient after-tax money to reinvest and justify putting more time and effort in our businesses. The fastest way to make people give up is seeing all their hard work and the results of their efforts redirected to wasteful and often counterproductive government spending and programs.

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.