Dallas Fed Manufacturing: Business Conditions Continued to Worsen in June

The Dallas Fed released its Texas Manufacturing Outlook Survey (TMOS) for June. The general business activity index rose for a second straight month but remained in negative territory at -12.7. This marks the fifth straight month of worsening business conditions.

Texas factory activity was largely unchanged in June, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, held steady at 1.3, with the near-zero reading indicating a second month of flat output.

Other measures of manufacturing activity indicated a decline in June. The new orders index remained negative but edged up to -7.3 from -8.7. The capacity utilization index was largely unchanged at -1.0. The shipments index fell eight points to -7.3.

Perceptions of broader business conditions continued to worsen in June, though the indexes were slightly less negative than last month. The general business activity index inched up to -12.7, and the company outlook index edged up to -8.9. The outlook uncertainty index rose three points to 15.2.

Labor market measures suggested an increase in head counts but shorter workweeks this month. The employment index moved up two points to 5.7, with 18 percent of firms noting net hiring and 12 percent noting net layoffs. The hours worked index remained negative and fell five points to -8.4.

Elevated price pressures continued in June, while wage growth remained rather subdued. The raw materials prices index inched up to 43.0. The finished goods prices index rose 11 points to 26.1, its highest reading in nearly three years. Meanwhile, the wages and benefits index slipped further below average, to a reading of 13.4.

Press release

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 jumped to their highest level in five months, coming in at 14.4.

Expectations for manufacturing activity six months from now remained positive. The future production index dipped 9 points to 22.6, while the future general business activity index rose 13 points, pushing just above its average reading. Other indexes of future manufacturing activity showed mixed movements but remained positive, albeit below average.