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Economy in Brief

Texas Manufacturing Activity and Expectations Indexes Negative for the Fourth Straight Month in August
by Winnie Tapasanun  August 29, 2022

• General business activity rebounds to -12.9 in August from -22.6 in July; future general business activity improves to -8.8 from July's -17.7.

• Company outlook negative for the sixth straight month; new orders growth negative for the fourth consecutive month and new orders negative for the third successive month.

• Production falls for the seventh time in nine months to lowest since May '20; employment eases but still above its series average.

• Price pressures moderate w/ prices received lowest since February '21 and prices paid lowest since October '20.

Manufacturing activity growth in Texas abated in August, according to the Texas Manufacturing Outlook Survey conducted by the Federal Reserve Bank of Dallas. The overall measure, the general business activity index, improved to a still-negative reading of -12.9 in August from -22.6 in July and -17.7 in June. The August result was the fourth consecutive negative reading and well below 9.0 last August. A higher 12.4% of respondents reported improved business activity in August, up from 9.0% in July. A lessened 25.3% of respondents reported a worsening of business conditions, down from July's 31.6%. The company outlook index was at a still-negative level of -7.6 this month, the sixth straight negative reading, up from -10.8 in July but down from 10.7 last August. Data were collected from August 16-24 from 86 Texas manufacturers.

The production index, a key measure of state manufacturing conditions, fell to 1.2 in August after rising to 3.8 in July, registering its seventh monthly fall in nine months to the lowest level since May 2020 and well below 20.4 last August. The growth rate of orders index decreased to -14.7, the fourth straight negative reading, from -12.0 in July and 10.2 last August. The new orders index rebounded to -4.4, its third successive negative reading, from July's -9.2, indicating a continued drop in demand but at a slightly less severe pace; however, it was well below 17.0 last August. The unfilled orders index slid to -1.9, the fourth m/m slide in five months, down from 6.1 in July and 22.4 last August. The capacity utilization index decreased to -0.6, its first negative reading since May 2020, from 3.5 in July and 19.6 last August. The shipments index fell to 3.4, the second m/m fall in three months, down from 4.3 in July and 16.6 last August. The delivery times index declined to -3.5 in August from 2.3 in July and 19.6 last August, suggesting faster delivery speeds.

Labor market activity eased slightly this month, still showing strong employment growth and longer workweeks. The employment index was at 15.6 in August, down from 17.9 in July and 22.2 last August but well above its series average of 7.8. Twenty-seven percent of firms reported more hiring this month while 11.7% reported net layoffs. The hours worked index was at 14.4 this month, the highest reading since March, up from 9.5 in July but down from 24.5 last August. The wages & benefits index rose to 45.8 in August, the first m/m rise since March, up from 38.1 in July and 44.2 last August.

Inflation indicators eased this month but remained elevated. The index for prices received for finished goods fell to 26.8 in August, the lowest reading since February 2021, from 29.3 in July and 39.1 last August. The index of prices paid for raw materials declined to 34.4 this month, the lowest level since October 2020, down from 38.4 in July, a high of 83.3 last November and 76.3 last August; nevertheless, it was higher than its 28.1 average.

Expectations on future manufacturing activity were mixed this month. The future general business activity index was at -8.8 in August, its fourth successive negative reading, up from -17.7 in July and -26.0 in June. The future production index rose to 23.9, a four-month high, from July's 13.6. Other indexes of future manufacturing activity, like capacity utilization and new orders, pushed further positive this month, to 19.0 and 6.7, respectively.

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.

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