The Federal Reserve Bank of Dallas released the regional Dallas Fed Business Activity reading for May, showing a drop to −20.8 from a less negative −13.9 from April. The Manufacturing Production Index also fell, dropping into the red at −13.1 in May from a reading of 5.8 in April.

This is an interesting twist, with both index readings being in negative territory. Texas factory activity declined in May after two months of increases. Also, it was just on May 24 that the Dallas Fed suggested that there would be no recession for Texas. The Federal Reserve Bank of Dallas said at that time that the overall economy is expected to grow this year.

Tuesday’s reporting is from a pool of business executives responding to the Texas Manufacturing Outlook Survey. This was effectively the lowest regional reading in a year.

Other measures of current manufacturing activity also reflected contraction this month:

• The new orders index fell more than 20 points to −14.9, after pushing into positive territory last month.
• The growth rate of orders index has been negative since late 2014 and fell to −14.7 in May, after climbing to near zero in April.
• Capacity utilization and shipments indexes returned to negative territory after two months of positive readings, coming in at yearlong lows of −11.0 and −11.5, respectively.

Perceptions of broader business conditions were more pessimistic this month:

• The general business activity index declined from −13.9 to −20.8.
• The company outlook index fell 10 points to −16.1.

Latest readings on employment and workweek length indicated a fifth consecutive month of contraction in May:

• The employment index moved down three points to −6.7.
• Some 16% of firms noted net hiring, and 22% noted net layoffs in May.
• The hours worked index posted a double-digit decline from its April reading, coming in at −11.8.
• Price pressures were mixed, and wages continued to rise.
• Input costs rose for a second month in a row, as the raw materials prices index pushed up to 12.4, its highest level since October 2014.
• Finished goods prices edged up for a third month in a row and came in at −3.3 in May.
• The wages and benefits index stayed positive and rose from 16.7 to 21.8, suggesting a slightly accelerated rise in compensation.

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Expectations regarding future business conditions were mixed in May:

• The index of future general business activity fell two points to −1.8.
• The index measuring future company outlook remained positive but moved down to 4.4 this month.
• Indexes for future manufacturing activity fell but remained solidly positive.

Data for this survey were collected between May 17 and May 25, and 111 Texas manufacturers responded to the survey.

When the share of firms reporting an increase exceeds the share reporting a decrease, the index will be greater than zero, and this suggests growth over the prior month. If the share of firms reporting a decrease exceeds the share reporting an increase, the index will be below zero, which represents contraction.

The Dallas Fed serves the Eleventh Federal Reserve District (of 12 districts). Its area serviced is all of Texas, as well as the northern portion of Louisiana and the southern portion of New Mexico.

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