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Economy in Brief

Texas Manufacturing Index Enters Negative Territory in May
by Sandy Batten  May 31, 2022

• First dip below zero since July 2020.

• Production and shipments increased while orders and employment fell.

• Prices paid little changed; prices received edged down.

• Delivery times shortened markedly.

Manufacturing activity in Texas unexpectedly weakened further in May, according to the Texas Manufacturing Outlook Survey conducted by the Federal Reserve Bank of Dallas. The general business activity index fell to -7.3 in May from 1.1 in April. This was the lowest reading and the first dip below zero since July 2020. The percentage of respondents reporting improved conditions fell to 14.5% from 19.5% while the percentage reporting worsening conditions rose to 21.8% from 18.4%. The index of expected business conditions in six months also fell below zero in May, to -6.5 from 1.8 in April. Data were collected between May 17-25 from 87 manufacturers.

Despite the drop in overall business conditions, the production index rebounded to 18.8 in May after a decline to 10.8 in April. Shipments rose to 13.1 in May from 11.8 in April, their second consecutive monthly increase. Capacity utilization increased to 19.8 from 14.3. By contrast, new orders plunged to 3.2 in May from 12.1.

Labor market conditions softened a bit in May. The employment reading weakened to 20.9 in May from 24.6. The percentage reporting an increase in employment fell to 31.4% from 34.3% while the percentage reporting a decline rose to 10.5% from 9.7%. Wages and benefits remained elevated but softened slightly to 50.5 in May from 50.9 in April and 55.2 in March.

Inflation pressures eased very slightly. The prices received index slipped to 41.8 in May from 43.5 in April and 47.8 in March, its second consecutive monthly decline. The prices paid index was little changed at 61.8 in May versus 61.5 in April, but was well off its record high of 83.3 last November. While the delivery times index fell markedly to 4.3 in May from 21.2 in April, in a special question. 64.9% of respondents reported that they were still experiencing supply-chain disruptions/delays. However, 33.9%v reported that these disruptions/delays had improved over the past month with nearly half expecting the supply chain to return to normal within the next six months.

The decline in the future general business activity index was widely spread across categories.

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 can be found in Haver's SURVEYS database.

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