Texas Manufacturing Expansion Continues

In Industry Newsby Bradford

For this month’s survey, Texas business executives were asked supplemental questions on employment expectations, the labor market and business activity. Results for these questions from the Texas Manufacturing Outlook Survey, Texas Service Sector Outlook Survey and Texas Retail Outlook Survey have been released together.

Texas factory activity continued to expand in February, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, slipped four points to 10.1, indicating a slight deceleration in output growth.

Most other measures of manufacturing activity also suggested continued but slower expansion in February. The new orders index fell five points to 6.9, its lowest reading in more than two years. Similarly, the capacity utilization index fell eight points to 7.1 and reached a two-year low. Meanwhile, the shipments index was largely unchanged at 10.7.

Perceptions of broader business conditions improved notably in February. The general business activity index rose 12 points to 13.1 after posting weak readings the prior two months. The company outlook index rose seven points to 14.2, a four-month high. The index measuring uncertainty regarding companies’ outlooks retreated 12 points to 4.1, its lowest reading in nine months.

Labor market measures suggested stronger employment growth and little change in workweek length in February. The employment index rebounded from 6.6 to 12.6. Twenty-two percent of firms noted net hiring, compared with 9 percent noting net layoffs. The hours worked index came in at 1.8.

Upward pressure on prices and wages continued in February. The raw materials and finished goods prices indexes held steady at 21.8 and 5.2, respectively, roughly in line with average levels for these indexes. The wages and benefits index remained quite elevated at 28.9.

Expectations regarding future business conditions remained positive in February. The indexes of future general business activity and future company outlook rose to 17.7 and 26.7, respectively. Most other indexes for future manufacturing activity fell but remained solidly positive.

Published by Federal Reserve Bank of Texas – February 25, 2019