Slower Texas Manufacturing Growth Followed by More Optimism Ahead

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The Federal Reserve Bank of Dallas has released its latest Texas Manufacturing Outlook Survey, and factory activity in the Texas region continued to expand in February. Its key production index actually fell by 4.4 points to 10.1, which is said to be indicating a slight deceleration in output growth. Most other measures of manufacturing activity were suggesting continued but slower expansion in February. There were some rather positive issues inside the outlook here, but orders were weak at the same time that wage and price pressures were elevated.

While a decline in the index was seen, it is important to consider that the zero-line is what divides growth and contraction. Readings above zero indicate growth, and readings under zero represent contraction from the prior month. Data were collected between February 12 and February 20, with 123 Texas manufacturers responding to the survey.

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, with the general business activity index rose 12 points to 13.1 after posting weak readings the prior two months.

Companies are also shown as more optimistic ahead. There was a gain in the company outlook index with a rise of seven points to 14.2. That was a four-month high. And the index measuring uncertainty (companies’ outlooks) fell by 12 points to 4.1, which was shown to be its lowest reading in nine months.

Strong employment trends continued along with higher prices in the Texas region. The employment index rose six points to 12.6 in February. There were 22% of firms that noted net hiring for the month, and 9% of firms noted net layoffs. There was upward pressure on prices and wages. The raw materials and finished goods prices indexes held steady at 21.8 and 5.2, respectively, while the wages and benefits index remained quite elevated at 28.9.

The Dallas Fed further said:

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.

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