Texas Manufacturing Activity and Expectations Indexes Negative for the 10th Straight Month in February

Manufacturing activity in Texas contracted in February, according to the Texas Manufacturing Outlook Survey conducted by the Federal Reserve Bank of Dallas. The overall measure, the general business activity index, was at -13.5 in February, down from -8.4 in January but up from -20.0 in December. The February result was the 10th consecutive negative reading and well below 12.5 last February. A lessened 11.7% of respondents reported improved business activity in February, down from 17.2% in January. A lessened 25.2% of respondents reported a worsening of business conditions, marginally down from January's 25.6%. The company outlook index dropped to -17.5 in February, the 12th straight negative reading and the lowest since June, after increasing to -2.5 in January; the latest reading was noticeably down from 5.6 last February. Data were collected from February 14-22 from 100 Texas manufacturers.

The production index, a key measure of state manufacturing conditions, fell to -2.8 in February, the fourth monthly fall in five months, from 0.2 in January; it was the first negative reading since May 2020’s -27.6 and below 14.5 last February. A lessened 24.5% of respondents reported higher production while an increased 27.3% reported a decline. The growth rate of orders index decreased to -16.9 this month, the 10th straight negative reading, from -12.3 in January; it was down from 12.1 last February. The new orders index slid to -13.2, the ninth successive negative reading, after increasing to -4.0 in January, indicating a continued drop in demand at a more severe pace; it was significantly below 22.8 last February. The unfilled orders index dropped to -13.3, the seventh consecutive negative reading and the lowest since May 2020, down from -6.7 in January and 7.8 last February. The capacity utilization index fell to -4.1, its first negative reading since November, from 6.0 in January and 11.0 last February. In contrast, the shipments index improved to -5.0 in February after falling to -6.3 in January, registering the fourth negative reading in five months and well below 23.2 last February. The delivery times index rose to 3.4 this month, the third straight monthly rise, from -0.2 in January; however, it was well below 21.5 last February.

Labor market indexes showed relatively flat employment and longer workweeks. The employment index decreased to -1.0 in February, its first negative reading since June 2020 and the lowest since May 2020, down from 17.6 in January and 17.7 last February. A lessened 15.0% of respondents reported net hiring this month while an increased 16.0% reported net layoffs. The wages & benefits index recovered to 32.7 from January’s 30.5, but it remained below a 54.9 high last March and 43.9 last February. The hours worked index rebounded to 4.9 this month from 3.8 in January; however, it was well below 18.5 last February and a 24.3 high in July 2021.

Inflation indicators rose this month and remained very high. The index for prices received for finished goods jumped to 15.8 in February, the highest reading since October, after falling to 9.9 in January; however, it was well below 44.9 last February and a 51.3 high in October 2021. An increased 22.4% of respondents reported raising prices while a lessened 6.6% reported lowering prices. The index of prices paid for raw materials rebounded to 25.1 this month, the highest level since October, from 20.5 in January, but it was significantly below 73.1 last February and an 84.1 high in November 2021.

Expectations on future manufacturing activity were mixed this month. The future general business activity index was at -2.9 in February, its 10th consecutive negative reading, up from -9.1 in January and -9.6 in December. The future production index rose to 21.3 in February from 16.1 in January and the future employment index rose to 23.6 from 20.4, registering their highest levels since September. The future shipments index increased to 18.0, the highest level since May, from January’s 15.5. In contrast, other indexes of future manufacturing activity declined this month vs. last month but remained in positive territory, notably wages & benefits (38.2 vs. 43.7), capacity utilization (15.2 vs. 19.2), new orders (10.2 vs. 14.8), and growth rate of orders (0.7 vs. 8.7).

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.