Texas Factory Activity Surges, Business Outlook Improves

Texas manufacturing activity grew strongly for the second month in a row, according to the June factory survey produced by the Dallas Federal Reserve.

The production index rose six points to 17.1, the bank reported, its highest reading in more than two years.

The new orders index also jumped to 13 in June, the highest level seen since July 2011. Factory capacity utilization also rose, from 6.4 in May to 15.3 in June.

While there was no movement in the labor index, the hours worked index moved up to 4.8, the first positive reading in four months.

Manufacturers reported paying more for raw materials, as the index rose to 14.3 in June from 6.4 in May. The finished goods index remained in negative territory at -2.1, but gained significantly from -8.3 in May. A third of the manufacturers surveyed by the bank said they expected further raw materials price increases over the next six months, while 25% expect higher finished goods prices.

After two months of gloomy expectations about the broader business climate, manufacturers were more upbeat in June as the general business activity index climbed to 14.7 from -2.6 in May. Manufacturers were also upbeat about their own firms, with the company outlook index jumping from 5.3 in May to 21.8 in June.

Last week, the Philadelphia Fed reported increased manufacturing activity in its business outlook survey for June. The current activity index jumped from -5.2 in May to 12.5 in June. The new orders index also increased from -7.9 to 16.6. Despite these gains, the employment index continued to show lower employment in the region, with the index at -5.4, the third month it was in negative territory.

Manufacturers in the Philadelphia region were split on their expectations for production increases in the short term. While 49.3% said they expected to increase production in the next six months, 50.7% indicated no production increase over that period.