Manufacturing in Texas and in the Midwest continued to grow, according to the latest reports from two Federal Reserve regional banks, but companies appear headed for softening economic conditions.
Growth in Texas manufacturing activity continued in August but at a slower pace than in July, according to the Texas Manufacturing Outlook Survey. The production index fell from 12 to 6.4, suggesting a slowdown in manufacturing output.
Other indexes in the Texas survey also suggested slowing activity. The new orders index was zero, suggesting flat demand. The capacity utilization index fell from 8.7 to 1.7, its lowest level since April. And shipments declined in August as more than one in four manufacturers reported a decrease in shipment volumes.
The raw materials price index rose 8 points to 10.9, and 44% of manufacturers said they expect further increases in raw material costs over the next six months. At the same time, manufacturers reported they were not able to pass along higher costs as the finished goods price index fell 1.6 to -5.5.
NAM Chief Economist Chad Moutray, writing in NAM's Shopfloor blog, said "these figures show that the manufacturing sector in Texas remains soft. New orders are essentially unchanged from the previous month, with the growth of production and capacity utilization easing and shipments contracting. Inventories were rising. Raw material prices, which had decelerated in recent months, began to move higher again."
On a more positive note, the employment index rose to 14.2, with 24% of manufacturers reporting they had hired new workers.
Looking ahead, manufacturers' expectations for business conditions in the next six months rose for both production and new orders. However, their outlook for general business activity, though improved, was still negative at -5.1.
The Chicago Fed Midwest Manufacturing Index rose 1.8% in July, to a seasonally adjusted level of 95.6. Revised data showed the June index was up 0.9%, not 1.1% as previously reported.
Production in the automotive sector was up 6.3%, compared to 2.3% improvement nationally in July. Automotive output was up 30% from a year ago.
The resource sector edged up 0.3%, led by food output. The sector was up 1.8% compared to July 2011.
Steel output fell 0.1% in July, after a 0.2% decline in June. Even so, output of steel in the region was up 8.1% from July 2011.
The machinery sector also edged down 0.8% in July, after an increase of 2.6% in June. This compared with the national machinery industry, which posted a 0.1% gain in July. Year over year, machinery output in the Midwest was up 11.6% and up 6.8% nationally.