Dallas Fed Manufacturing: Business Conditions Continue to Worsen in April

The Dallas Fed released its Texas Manufacturing Outlook Survey (TMOS) for April. The latest general business activity index came in at -14.5, down from -14.4 from last month. This marks the 24th consecutive month the index has been in contraction territory. All figures are seasonally adjusted.

Here is an excerpt from the latest report:

Texas factory output strengthened slightly in April, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose from -4.1 to 4.8.

Other measures of manufacturing activity were mixed this month. The new orders index remained negative, though it pushed up seven points to -5.3. The capacity utilization and shipments indexes turned positive this month, coming in at 4.2 and 5.0, respectively.

Perceptions of broader business conditions continued to worsen in April. The general business activity index held steady at -14.5—with the negative reading signaling worsening activity—and the company outlook index remained negative but moved up 10 points to -6.3. The outlook uncertainty index retreated six points to 17.3.

Labor market measures suggested flat employment and slightly shorter workweeks this month. The employment index edged down to a near-zero reading, suggesting no change in head counts. Fifteen percent of firms noted net hiring, the same as the share noting net layoffs. The hours worked index remained negative for a seventh month in a row but moved up six points to -2.3.

Wage pressures picked up this month, while price pressures retreated. The wages and benefits index pushed up 10 points to 30.6, a seven-month high and indicative of stronger-than-usual growth in compensation. The raw materials prices index retreated further below average, falling 10 points to 11.2. The finished goods prices index also fell, from 11.0 to 5.5.

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 improved in April. The future production index inched up to 34.8, and the future general business activity index rose from 1.3 to 7.9. Other measures of future manufacturing activity also pushed further positive 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 rose to 7.9, its highest level since February 2022.