Dallas Fed Manufacturing: Business Conditions Continue to Worsen in November

The Dallas Fed released its Texas Manufacturing Outlook Survey (TMOS) for November. The latest general business activity index came in at -19.9, down 0.7 from last month. This is the third consecutive monthly decline in the general business activity index and marks the 19th consecutive month it has been in contraction territory. All figures are seasonally adjusted.

Here is an excerpt from the latest report:

Texas factory activity contracted in November after two months of expansion, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, fell 12 points to -7.2.

Other measures of manufacturing activity also indicated contraction this month. The new orders index has been negative for 18 months and dropped from -8.8 to -20.5 in November. The capacity utilization index returned to negative territory, falling from 5.4 to -10.1, while the shipments index slipped eight points to -9.5.

Perceptions of broader business conditions continued to worsen in November. The general business activity and company outlook indexes remained largely unchanged at -19.9 and -18.8, respectively, having now spent more than a year and a half in negative territory. The outlook uncertainty index stayed slightly elevated at 20.3.

Labor market measures suggest slightly slower employment growth and shorter workweeks in November. The employment index edged down from 6.7 to 5.0, a reading below the series average of 7.8. Twenty-two percent of firms noted net hiring, while 17 percent noted net layoffs. The hours worked index posted a second negative reading and slipped three points to -5.5.

Wage growth normalized this month, while material cost growth remained below average and selling prices fell. The wages and benefits index moved down four points to 20.0, a reading in line with its series average. The raw materials prices index held steady at 12.6, a reading well below average and indicative of more modest price growth than usual. The finished goods prices index decreased from -2.1 to -6.2, its lowest reading since mid-2020.

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 the TMOS importance:

Texas is important to the nation’s manufacturing output. The state produced $159 billion in manufactured goods in 2008, roughly 9.5 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 10 percent of the nation’s computer and electronics products and nonmetallic mineral products, such as brick, glass and cement.

Here is a snapshot of the complete TMOS.

Texas Manufacturing Survey Future Outlook

Expectations regarding future manufacturing activity remained mixed in November. The future production index stayed positive but fell six points to 13.7. The future general business activity index posted a fourth consecutive negative reading and pushed down from -6.8 to -13.4. Most other measures of future manufacturing activity remained in positive territory this month.

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 dropped to -13.4.