Texas Manufacturing Activity Surges

Production index posts strongest reading in 15 months.

Texas factories are flexing their muscles according to the latest monthly manufacturing survey from the Federal Reserve Bank of Dallas.

The production index for June rose from 5.5 to 15.5, its strongest showing in 15 months. The new orders index also showed a healthy gain, from -0.6 in May to 7.9 in June, "suggesting demand finally grew after staying flat since February," the bank noted.

The shipments index rose to 9.6 after two months of near-zero readings and the capacity utilization index spiked to 13.3, its highest level since early 2011.

Texas manufacturers' perceptions of the broader economy improved in June, rising to 5.8 from -5.1 in May. Managers' outlooks for their own firms also improved, from 4.7 last month to 5.5.

Labor indicators showed improvement. The employment index grew from 8.5 to 13.3. Twenty-one percent of firms reported hiring new workers, while 8% reported layoffs.
Wages rose at a slower pace, with the wages and benefits index dropping from 20 to 13.2.

Looking ahead six months, Texas manufacturers forecast softening business conditions. Their outlook for general business activity slipped from 4.3 to 1.3 and their outlook for their companies dropped to 8.4 from 11.4 in May.

The Dallas Fed's survey contrasted with the results of the Philadelphia bank's survey released June 21. The current activity index fell to -16.6 from -5.8 in May, its second consecutive negative reading. Manufacturers' reports for new orders, shipments, and average work hours were also negative, suggesting overall declines in business.

MAPI Forecasts Continued Manufacturing Growth

While forecasting modest GDP growth, the Manufacturers' Alliance for Productivity and Innovation (MAPI) last week predicted that manufacturing would outpace the general economy. After registering 10% growth last week, MAPI said it expected manufacturing to grow at a 3% pace the remainder of the year.

“There is pent-up demand for consumer durable goods, particularly for motor vehicles, firms are profitable and have pent-up demand of their own for replacing traditional and high-tech business equipment, and there is strong growth from emerging economies for equipment to build their infrastructure,” said Daniel J. Meckstroth, Ph.D., MAPI chief economist and author of the analysis. “One negative is that the recession in Europe will have the effect of canceling out any net benefit from trade this year.”

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