Dallas Fed Manufacturing: Activity Falters Amid Increased Uncertainty

The Dallas Fed released its Texas Manufacturing Outlook Survey (TMOS) for February. The general business activity index came in at -8.3 after rising notably in January. This marks a 22.4 point decline from the previous month, the sharpest monthly drop since March 2020.

Texas factory activity fell in February after rising notably in January, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, fell 21 points to -9.1.

Other measures of manufacturing activity also declined this month. The new orders index fell 11 points to -3.5, and the capacity utilization index slid 14 points to -8.7. The shipments index remained positive but edged down to 5.6.

Perceptions of broader business conditions worsened in February. The general business activity index tumbled 22 points to -8.3, and the company outlook index fell 24 points to -5.2. The outlook uncertainty index shot up to 29.2 from a near-zero reading last month, reaching a seven-month high.

Labor market measures suggested flat head counts and shorter workweeks this month. The employment index came in near zero, with 12 percent of firms noting net hiring and an equal share noting net layoffs. The hours worked index slipped to -14.2, its lowest reading since mid-2020.

Input cost pressures intensified in February, while wage pressures retreated slightly. The raw materials prices index pushed up 18 points to 35.0, a multiyear high. The finished goods prices index inched up to 7.8, near its average level. The wages and benefits index edged down to 16.7 from 20.9.

Background on the Texas Manufacturing Outlook Survey (TMOS)

Monthly data for this indicator only dates back to 2004, so it is difficult to see the full potential of this indicator without several business cycles of data. Nevertheless, it is an interesting and important regional manufacturing indicator. The TMOS is a monthly survey of 100 Texas manufacturers that provides an assessment on the state's factory activity. The survey asks firms to whether output, employment, orders, prices, and other indicators have increased, decreased, or remained unchanged over the previous month. Results are aggregated into balance indexes where negative readings indicator contractions while positive ones indicate expansion.

The Dallas Fed on importance of Texas Manufacturing:

Texas is important to the nation’s manufacturing output. The state produced $296 billion in manufactured goods in 2023, roughly 11 percent of the country’s manufacturing output. Texas ranks second behind California in factory production and first as an exporter of manufactured goods.

Texas turns out a large share of the country’s production of petroleum and coal products, reflecting the significance of the region’s refining industry. Texas also produces over 13 percent of the nation’s chemical products and over 10 percent of nonmetallic mineral products, such as brick, glass and cement.

Here is a snapshot of the complete TMOS.

Texas Manufacturing Survey Future Outlook

The next chart is an overlay of the general business activity index and the future outlook index — the outlook six months ahead. Future general business activity tumbled to 7.7 in February, its lowest level in ten months.

Expectations are for increased manufacturing activity six months from now, though the future indexes retreated from elevated January levels. The future production index fell to 28.3 from 44.8, and the future general business activity index fell to 7.7 from 35.5. Other indexes of future manufacturing activity also fell this month but remained positive.