Dallas Fed: Texas manufacturing activity strengthens further

Texas factory activity increased in November, according to business executives responding to the Texas Manufacturing Outlook Survey, the Federal Reserve Bank of Dallas reported on November 29. The production index, a key measure of state manufacturing conditions, was positive for the third consecutive month and came in at a reading of 13, up from 7 in October.

All other manufacturing activity indicators also rose, posting their best month since May. The new orders and shipments indexes turned positive after five months of negative readings. The capacity utilization index rose from minus-2 to 10, with 27 percent of respondents reporting an increase.

Measures of general business conditions improved in November, suggesting the broader economy continued to strengthen. The general business activity index jumped from 3 in October to 16 this month, with 23 percent of manufacturers reporting improved activity. The company outlook index also rose, increasing from 13 to 19, as more than one-quarter of respondents said their outlook improved in November.

Labor market indicators picked up this month. The employment index rose from -4 to 6, reaching its highest level since May, and hours worked increased for the first time in four months. The wages and benefits index remained positive, although 89 percent of companies noted no change in compensation costs.

Prices firmed in November. Input costs continued to climb, with the raw materials price index rising from 30 to 35. Thirty-seven percent of manufacturers saw an increase in prices paid for raw materials, compared with only 2 percent who saw a decrease. Finished goods prices rose slightly as the index pushed into positive territory after posting negative readings in four of the last five months. Over the next six months, 49 percent of respondents anticipate further increases in raw materials prices, while one-third expect higher finished goods prices.

Manufacturers’ six-month outlook continued to improve. The future indexes for production, new orders, shipments and capacity utilization rose to their highest levels since January. The future general business activity index advanced from 14 to 26, and the future company outlook index rose to 31, with 94 percent of firms anticipating similar or improved conditions six months from now.

The Dallas Fed conducts the Texas Manufacturing Outlook Survey monthly to obtain a timely assessment of the state’s factory activity. Data were collected November 16-23, and 98 Texas manufacturers responded to the survey. Firms are asked whether output, employment, orders, prices and other indicators increased, decreased or remained unchanged over the previous month.

Survey responses are used to calculate an index for each indicator. Each index is calculated by subtracting the percentage of respondents reporting a decrease from the percentage reporting an increase. When the share of firms reporting an increase exceeds the share of firms reporting a decrease, the index will be greater than zero, suggesting the indicator has increased over the prior month. If the share of firms reporting a decrease exceeds the share reporting an increase, the index will be below zero, suggesting the indicator has decreased over the prior month. An index will be zero when the number of firms reporting an increase is equal to the number of firms reporting a decrease.

Company Business Indicators Relating to Facilities and Products in Texas Current

Indicator Nov Index Oct Index Change Indicator Direction* Trend** (months) % Reporting Increase % Reporting No Change % Reporting Decrease Production 13.1 6.9 +6.2 Increasing 3 29.1 54.9 16.0 Capacity Utilization 9.9 -2.3 +12.2 Increasing 1 27.3 55.3 17.4 Volume of New Orders 9.1 -4.3 +13.4 Increasing 1 29.8 49.5 20.7 Growth Rate of Orders 9.3 -2.5 +11.8 Increasing 1 25.7 57.9 16.4 Unfilled Orders 0.0 -6.3 +6.3 Unchanged 1 17.0 66.0 17.0 Volume of Shipments 7.8 -2.3 +10.1 Increasing 1 25.8 56.2 18.0 Delivery Time -1.0 -11.5 +10.5 Decreasing 6 10.2 78.6 11.2 Materials Inventories -7.1 -1.9 -5.2 Decreasing 7 14.3 64.3 21.4 Finished Goods Inventories -12.2 -12.5 +0.3 Decreasing 2 10.2 67.3 22.4 Prices Paid for Raw Materials 34.9 29.9 +5.0 Increasing 16 36.9 61.1 2.0 Prices Received for Finished Goods 6.0 -3.5 +9.5 Increasing 1 15.3 75.4 9.3 Wages and Benefits 5.1 10.6 -5.5 Increasing 12 8.2 88.7 3.1 Employment 5.8 -4.1 +9.9 Increasing 1 17.5 70.8 11.7 Average Employee Workweek (Hours Worked) 6.2 -7.7 +13.9 Increasing 1 18.6 69.1 12.4 Capital Expenditures 2.1 -1.9 +4.0 Increasing 1 10.3 81.4 8.2

General Business Conditions Current

Indicator Nov Index Oct Index Change Indicator Direction* Trend** (months) % Reporting Improved % Reporting No Change % Reporting Worsened Company Outlook 18.6 13.0 +5.6 Improving 2 25.7 67.2 7.1 General Business Activity 16.2 2.6 +13.6 Improving 2 22.8 70.6 6.6

Company Business Indicators Relating to Facilities and Products in Texas Six Months Ahead

Indicator Nov Index Oct Index Change Indicator Direction* Trend** (months) % Reporting Increase % Reporting No Change % Reporting Decrease Production 45.1 36.2 +8.9 Increasing 21 49.1 47.0 4.0 Capacity Utilization 43.9 36.0 +7.9 Increasing 21 46.7 50.5 2.8 Volume of New Orders 49.4 40.2 +9.2 Increasing 23 51.5 46.4 2.1 Growth Rate of Orders 40.5 35.4 +5.1 Increasing 21 44.4 51.7 3.9 Unfilled Orders 13.4 10.0 +3.4 Increasing 4 21.6 70.1 8.2 Volume of Shipments 48.3 34.9 +13.4 Increasing 21 52.6 43.1 4.3 Delivery Time -1.1 -5.0 +3.9 Decreasing 1 8.2 82.5 9.3 Materials Inventories 9.3 2.0 +7.3 Increasing 2 23.7 61.9 14.4 Finished Goods Inventories 6.2 -5.9 +12.1 Increasing 1 20.6 64.9 14.4 Prices Paid for Raw Materials 41.3 35.7 +5.6 Increasing 20 48.5 44.3 7.2 Prices Received for Finished Goods 22.9 11.0 +11.9 Increasing 4 33.3 56.3 10.4 Wages and Benefits 33.0 23.8 +9.2 Increasing 78 33.8 65.4 0.8 Employment 37.9 13.0 +24.9 Increasing 15 43.2 51.6 5.3 Average Employee Workweek (Hours Worked) 22.1 17.9 +4.2 Increasing 21 23.2 75.8 1.1 Capital Expenditures 23.5 10.1 +13.4 Increasing 12 30.9 61.7 7.4

General Business Conditions Six Months Ahead

Indicator Nov Index Oct Index Change Indicator Direction* Trend** (months) % Reporting Improved % Reporting No Change % Reporting Worsened Company Outlook 31.4 26.9 +4.5 Improving 18 37.2 57.0 5.8 General Business Activity 26.1 14.2 +11.9 Improving 3 34.4 57.3 8.3

*Indicator direction refers to this month's index. If index is positive (negative), indicator is increasing (decreasing) or improving (worsening). If zero, indicator is unchanged.

**Number of months moving in current direction.

Data have been seasonally adjusted as necessary. See information on seasonal adjustment.

Comments from Survey Respondents
These comments were selected from respondents' completed surveys and have been edited for publication.

Machinery Manufacturing
"Orders continue to be very uneven compared with normal years. July and August were as bad as the fall of 2008, and September and October orders were much higher but still significantly below the levels in the first half of 2008. Future growth is planned through increased market share, but we are in a market that is experiencing very little real growth."

Chemical Manufacturing
"We have seen an increase in business coming from several areas, and our customers want us to do more items turnkey. Previously, we would just put rubber on pipe, but now our customers want us to buy the pipe as well. Therefore, we have seen an increase in our inventory, particularly for pipe. We also have confirmed that the inventory buildup among our customers over the past several months has started to deplete, and they are now reordering."

Fabricated Metal Product Manufacturing
"We are cautiously optimistic."

Computer and Electronic Product Manufacturing
"Some large companies are leaning hard on the small companies that manufacture their products in order to reduce costs, pushing inventories and costs down onto the manufacturers."

Plastics and Rubber Product Manufacturing
"Overall business is still slow."

Furniture and Related Product Manufacturing
"More dealers are barely holding on, and we are hearing rumbles of one or two major companies getting ready to file for bankruptcy. Retail is very soft in the home furnishing arena."

Food Manufacturing
"High dairy and sugar prices are really hurting us, and a weaker dollar does not help."

Beverage and Tobacco Product Manufacturing
"The local economy has improved slightly here in East Texas."