Texas Manufacturing Activity Still Weak, but Some Components Improve

Manufacturing activity in Texas weakened further in July, according to the Texas Manufacturing Outlook Survey conducted by the Federal Reserve Bank of Dallas. The overall measure, the general business activity index, fell from -17.7 in June to -22.6 in July. This July reading is yet again the lowest since May 2020 which occurred in the midst of the COVID recession. All the latest data were collected between July 12 and 20 from 87 manufacturers in Texas.

The number of respondents reporting an increase in their general activity index fell to 9.0% in July from 15.4% last month. The number indicating a decrease in activity was also down, though just slightly to 31.6% from 33.1% in June. The company outlook index was less negative as well, at -10.8% in July after -20.2% in June.

The production index edged up modestly to 3.8 in July from 2.3 in June after rising to 18.8 in May. The new orders index fell again this month to -9.2 from -7.3, which had been its first negative reading in two years. The growth rate of orders index, which had been -16.2 in June, was still noticeably negative in July, but somewhat less so at -12.0.. The unfilled orders index turned positive, shifting from -8.8 in June to 6.1 in July. The capacity utilization index was almost unchanged, registering 3.5 after declined to 3.3 in June; it had been 19.8 in May. The shipments index was still low at 4.3 in July, but this was an increase from 1.2 in June. The delivery times index did retreat to 2.3 this month from 19.9 in June.

Labor market activity was somewhat mixed in July. The employment index was up to 17.9 from 15.2 in June but still below May's 20.9. Firms reporting a net increase in employment were 27.9% of the total, up from 23.9% in June while 10.0% had a net decline in employment, down slightly from 8.7% in June. The hours worked index decreased slightly to 9.5 from 11.8. The wages & benefits index was 38.1 in July, down from 49.9 in June; the July reading was the lowest since April 2021 but still well above most survey results prior to that (the survey began in June 2004).

Inflation indicators eased yet again this month but were still highly elevated. The index for prices received for finished goods fell to 29.3 in July from 33.8 in June and was the lowest reading since February 2021. The index of prices paid for raw materials declined markedly to 38.4 this month from 57.5 in June and the lowest level since November 2020.

The future general business activity index recovered somewhat to -17.7 in July from -26.0 in June. Other measures of future manufacturing activity showed widespread declines, although less than in June. In particular, delivery times did have a modest positive reading, indicating the expectation of more activity to come.

Each index is calculated by subtracting the percentage reporting a decrease from the percentage reporting an increase. When all firms report rising activity, an index will register 100. An index will register -100 when all firms report a decrease. An index will be zero when the number of firms reporting an increase equals the number reporting a decrease. Data for the Texas Manufacturing Outlook, conducted by the Federal Reserve Bank of Dallas, can be found in Haver's SURVEYS database.