• Manufacturing components show improvement.

• Expectations are positive.

Even though the Dallas Federal Reserve reported in its Texas Manufacturing Outlook Survey that the General Business Activity Index remained negative at -3.0% in July, there was widespread improvement in the factory sector. Moreover, the overall index is vastly improved versus the near-record low of -49.2% in May. (Data extend back to June 2004).

Improvement in each of the business indicators was evident this month as the production index rose to 16.1% from 13.6%. At 1.3%, the growth rate of new orders index was positive for the first time since February, while the unfilled orders index improved to 7.9%, its best reading in just under two years. The shipments index also rose to the highest level since August of last year, following severe weakness in May. The delivery times measure showed that order fulfillment has slowed.

The employment index strengthened to 3.1% this month, its first positive reading in six months. An increased 18% of respondents reported gains in hiring while a greatly lessened 15% reported a decline. The wages & benefits measure improved to 9.0%, though it remained weaker than the highs of 30% or more in the summer of 2018.

The index of prices received improved to a still-negative -1.5%, indicating the slowest rate of price deflation since February. A fairly steady nine percent of respondents reported higher prices while a lessened 11% reported a decline. While the raw materials price measure of 9.7% was a bit below June's index, it was the third consecutive positive reading. It remained well below the highs registered two years ago.

The index of expected business conditions in six months declined to 10.6% in July from 19.7% in June. This followed April's low of -43.0%. Strength amongst expected business indicators remained with the future new orders and future shipments readings strong. The expected employment index backed away from its June high as a lessened 26% of respondents expected higher employment and a higher 15% expected a decline. Future capital expenditures fell sharply.

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 or decrease is equal. Items may not add up to 100% because of rounding. Data for the Texas Manufacturing Outlook can be found in Haver's SURVEYS database.