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Economy in Brief

Texas Manufacturing Activity and Expectations Indexes Deteriorate in June, Their Second Straight Negative Readings
by Winnie Tapasanun  June 27, 2022

• General business activity lowest since May ’20; future general business activity lowest since April ’20.

• Company outlook posts negative readings for the fourth straight month.

• Production and new orders growth lowest since May ’20; employment eases but above its series average.

• Prices received lowest since March ’21 and prices paid lowest since January '21.

Manufacturing activity in Texas weakened further in June, according to the Texas Manufacturing Outlook Survey conducted by the Federal Reserve Bank of Dallas. The overall measure, the general business activity index, dropped to -17.7 in June from -7.3 in May and 1.1 in April. The June reading was the lowest since May 2020 and well below 31.1 last June. A higher 15.4% of respondents reported improved business activity in June, slightly up from 14.5% in May. A higher 33.1% of respondents reported a worsening of business conditions, up from 21.8%. The company outlook index worsened to -20.2 this month, the fourth straight negative reading and the lowest since May 2020, from -10.0 in May. Data were collected between June 14-22 from 90 manufacturers.

The production index, a key measure of state manufacturing conditions, fell to 2.3 in June after rising to 18.8 in May, registering its sixth monthly fall in seven months and noticeably below 28.9 last June. The new orders index fell to -7.3, its first negative reading in two years, from 3.2, indicating a continuing drop in demand. The growth rate of orders index decreased to -16.2, the third consecutive m/m decline, from -5.3. The unfilled orders index slid to -8.8, the fourth m/m slide in five months, from 4.1. The capacity utilization index declined to 3.3 after rising to a five-month-high 19.8. The shipments index fell to 1.2, the first m/m fall since March, from 13.1. These June readings were their lowest since May 2020. The delivery times index rose to 19.9 in June from 4.3 in May, suggesting slower delivery speeds.

Labor market activity eased slightly this month, still showing strong employment growth and longer workweeks. The employment index declined to 15.2 in June from 20.9 in May, registering the lowest level since February 2021 but well above its series average of 7.7. Twenty-four percent of firms reported more hiring this month while 8.7% reported net layoffs. The hours worked index rebounded to 11.8, a three-month high, from 7.4. The wages & benefits index slipped to a still-high 49.9 in June from 50.5 in May, well above its 20.4 average.

Inflation indicators eased this month but remained highly elevated. The index for prices received for finished goods fell to 33.8 in June, the lowest reading since March 2021, down from 41.8 in May and 43.9 last June. The index of prices paid for raw materials declined to 57.5 in June, the lowest level since January 2021, down from 61.8 in May and an elevated-level 82.5 last June but markedly higher than its 28.0 average.

The future general business activity index plunged to -26.0 in June, the lowest reading since April 2020, from -6.5 in May and 1.8 in April. Other measures of future manufacturing activity showed widespread declines.

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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