Dallas Fed Manufacturing: Conditions Worsen to 5-Year Low

The Dallas Fed released its Texas Manufacturing Outlook Survey (TMOS) for April. The general business activity index came in at -35.8, its lowest level since 2020. This marks a 19.5 point decline from the previous month and the third straight monthly decline.

Texas factory activity continued to rise in April, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, was largely unchanged at 5.1, a reading indicative of modest growth.

Other measures of manufacturing activity signaled contraction, however. The new orders index plummeted 20 points to -20.0. The capacity utilization index edged down to -3.8, and the shipments index fell into negative territory for the first time this year, slipping to -5.5 from 6.1.

Perceptions of broader business conditions continued to worsen notably in April. The general business activity index fell 20 points to -35.8, its lowest reading since May 2020. The company outlook index also retreated to a postpandemic low of -28.3. The outlook uncertainty index pushed up 11 points to 47.1.

Labor market measures suggested a slight decrease in head counts and shorter workweeks this month. The employment index held fairly steady at -3.9, with 9 percent of firms noting net hiring and 13 percent noting net layoffs. The hours worked index slipped to -6.4 from -2.9.

Price pressures accelerated in April, while wage growth remained fairly stable. The raw materials prices index jumped 11 points to 48.4, its highest reading since mid-2022. The finished goods prices index rose nine points to 14.9, a reading well above average. Meanwhile, the wages and benefits index held mostly steady at 14.3, below its average reading.

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 importance of Texas Manufacturing:

Texas is important to the nation’s manufacturing output. The state produced $296 billion in manufactured goods in 2023, roughly 11 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 13 percent of the nation’s chemical products and over 10 percent of nonmetallic mineral products, such as brick, glass and cement.

Here is a snapshot of the complete TMOS.

Texas Manufacturing Survey Future Outlook

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 tumbled to -15.2, its lowest level since 2023.

Expectations for manufacturing activity six months from now remained mixed. The future production index was positive but retreated 13 points to 14.8, while the future general business activity index pushed further negative to -15.2. Most other indexes of future manufacturing activity remained positive but slipped further below average.