Texas Factory Sector Activity Weakening Is Broad-Based

The Federal Reserve Bank of Dallas reported in its Texas Manufacturing Outlook Survey that the General Business Activity Index declined to -12.1 during June from -5.3 in May. It was the lowest index reading in three years, down sharply from the high of 38.2 logged in February of 2018. It suggests a developing recession in factory sector activity.

Though it rose to 8.9 from 6.3 in May, the production diffusion index suggested a weak rate growth. These readings were down sharply from last year's high of 35.4. The diffusion index for new orders growth turned negative. The -6.7 reading was the worst in just over three years. The labor market indicators also deteriorated this month. The employment index declined to 8.8 from 11.6 while the wages & salaries index also fell to 22.7, the lowest level since November 2017.

Inflation pressure remained under wraps. The finished goods prices received index was little changed at 1.2 m/m, down from the high of 26.2 exactly two years ago. The prices paid index for raw materials improved modestly m/m to 16.4, but that compared to 54.3 twelve months earlier.

The index of expected business conditions in six months dropped to -2.7, in negative territory for the first time since May 2016. The production, new orders growth, shipments and employment indexes each weakened materially. Future hours worked and wages improved modestly. Capital spending intentions remained depressed.

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.