Dallas Fed: Texas Manufacturing Production Falls to Lowest Level Since Worst Days of Pandemic

Factory activity in Texas contracted again in August and the production fell to its lowest level since the worst days of the pandemic, a report out from the Federal Reserve Bank of Dallas said Monday.

The Texas Manufacturing Outlook Survey showed that the index for general business activity moved up to -17.2 from -20.0, an unexpected improvement but still deep in negative territory. This marks the 16th straight negative score of the general activity index.\

The Dallas Fed conducts the survey each month to assess business conditions in Texas and gauge the health of the manufacturing sector. Any level below zero describes a contraction in manufacturing.

Manufacturing accounts for about 11.9 percent of total output in the state in 2021, down from 13 percent in 2019, according to the most recent data available from the National Association of Manufacturers The sector contributed around $219 billion to the state’s gross domestic product in 2021, down from $241 billion in 2019. There were an average of 897,000 manufacturing employees in Texas in December 2021, down from 909,000 in 2019.

The company outlook metric was little changed at -18.4, indicating glum expectations among Texas manufacturers.

The production index fell six points to -11.2, the lowest level since May of 2020, when much of the country was still reeling from the lockdowns put in place at the start of the pandemic in the U.S.

Other measures indicate sluggishness. The new orders index, which has been in negative territory for more than a year, came in at -15.8, up slightly from July. The capacity utilization index edged down to -3.7. The shipments index dropped by a sizeable 14 points to -15.8. The capital expenditures index dropped to -8.6, a three-year low.

Labor market measures suggest slower growth in employment and shorter workweeks in August, possibly signaling a trailing off for labor demand. The employment index fell six points to 4.3, a reading below the series average of 7.8. Eighteen percent of firms noted net hiring, while 14 percent noted net layoffs. The hours worked index slipped back into negative territory, coming in at -3.8, indicating shorter workweeks.

The inflation gauges were mixed. Price pressures remained “rather subdued,” according to the Dallas Fed. The index of raw materials prices rose but remains below the longterm average. The index of prices of finished goods held steady at a level suggesting little price growth in August. But wage growth accelerated. The wages and benefits index “shot up” 16 points to 34.9, pushing past its average reading of 21.1.

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