Economy

Manufacturing Remains in Contraction in Texas

Jon C. Ogg

Published: February 29, 2016 11:40 am

Last Updated: January 13, 2020 12:34 pm

The Federal Reserve Bank of Dallas issued its Texas Manufacturing Outlook Survey on Monday. As you might have guessed, the index remained negative in the month of February. While not all the news here looks like an ongoing bloodbath versus the prior month, the reality is that manufacturing activity in the oil-rich state of Texas is running well under par and remains in contraction.

The Texas Manufacturing Outlook Survey showed that the key production index remained negative at -8.5. This may be in the red, but it is a slight improvement over the -10.2 reading from January. February’s report suggests that output declined at a slightly softer pace than in January.

What stood out here is that most other index components of current manufacturing activity also indicated further contraction in the month of February.

The new orders index fell eight points to -17.6. This was the lowest level since May 2009, back when Texas was in recession. Also in the red was a reading on the growth rate of orders index, remaining strongly negative at -17.4. Capacity utilization was largely unchanged, with that index coming in at -8.2. Shipments had plunged the month before, but this index rose 10 points to -1.1.

Another concern is that labor market indicators reflected further declines in February. The employment index fell by seven points to -11.1, its lowest reading since November 2009. Only 11% of the firms noted net hiring, while 22% noted net layoffs. The hours worked index was fairly steady at -9.8, which is suggesting a continued pullback in employee hours.

What hurts here on top of weak readings is that perceptions are weak and outlooks remain mixed to cautious. The Dallas Fed said:

Perceptions of broader business conditions remained strongly negative in February. The general business activity index has been negative for more than a year and came in at -31.8, up slightly from the January reading. The company outlook index posted a third negative reading in a row but edged up to -17.4. More than a quarter of manufacturers noted their outlook had worsened from January.

Expectations regarding future business conditions were mixed in February. The index of future general business activity reversed its 22-point decline in January with a 22-point increase this month, with the index coming in at -2.1. The index for future company outlook rebounded strongly to 15.1 after dipping into negative territory last month. Indexes for future manufacturing activity pushed further into positive territory.

One last area of concern is that pricing remains weak. The price measures index stayed negative in February, but wages continued to rise. February’s reading said:

The raw materials prices index declined 3 points to -12.0, although 73 percent of manufacturers noted no change in input costs. The finished goods prices index also declined three points, coming in at -12.5. Meanwhile, the wages and benefits index stayed positive but dipped from 16.5 to 12.3, suggesting a smaller rise in compensation.

The Dallas Fed’s Texas Manufacturing Outlook Survey was based on data collected from survey results from 118 Texas manufacturers between February 16 to February 24. The questions asked pertained to whether output, employment, orders, prices and other indicators increased, decreased or remained unchanged over the previous month.