Texas Manufacturing Hits 11-Year High in December, Says Dallas Fed

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A new report from the Federal Reserve Bank of Dallas revealed that the Texas manufacturing industry experienced large gains in December, ending the year by reaching its highest point in more than 11 years.

Manufacturers statewide participated in the Dallas Fed’s December outlook survey which showed the production index, a key indicator of the state’s factory activity, spiked 18 points to reach 32.8, up from 15.1 in November.

New orders surged 10 points to 30.1, another 11-year high according to the Dallas Fed. Order rates, however, grew more modestly, moving up to 21.4 on the index, an increase of around 3 points.

December shipments hit 21.5, almost 5 points higher than November. The capacity utilization rate index, which measures the proportion of potential economic output that actually occurs over a time period, registered at 26.3, rising nine points from the previous month.

The Dallas Fed compiles data each month through the Texas Manufacturing Outlook Survey (TMOS) which looks at a host of business indicators specific to this industry. About 100 manufacturers from across the state regularly participate in the survey. The Dallas Fed said it began using this monthly tool to collect data in mid-2004. TMOS focuses on the state’s manufacturing sector because its movements often signal changes within the general economy.

Manufacturers felt more optimistic about the current economic climate. The general business activity index reflected 29.7, a 10 point bump up from November. The survey posted double-digit increases on its company outlook index, which hit 31.5 in December, formerly 18.5 in November. Both indexes represented highs last seen in 2006.

The industry’s labor market measures suggested more rapid employment growth and longer workweeks in the month of December. Overall, employment came in at 20.4 on the index, up 14 points from November. Additionally, more than 30 percent of firms noted increases in hiring, compared to 11 percent showing layoffs. Work hours skyrocketed to 23.3, a 12-year high.

Looking six months ahead, Texas manufacturers remained optimistic about the economy. The general business activity index inched up to 40.9, nearly two points higher than in November. Future company outlook remained steady at 40.1 points. Other indices for future manufacturing activity reflected mixed movements but remained solidly in positive territory, according to the Dallas Fed.

One survey respondent called the future promising. “With the passage of the tax relief bill, my feeling is that the manufacturing segment of the economy will continue to grow at a faster pace. The biggest problem for most manufacturing companies will be finding and hiring competent employees.”

The Dallas Fed protects the privacy of the individuals who take the survey and conceals their identities. Another participant expressed: “Lingering effects of Hurricane Harvey suppressing the Houston metro area economy are still with us.”

Texas plays a key role in the nation’s manufacturing portfolio. According to the Texas Comptroller’s Office, the state accounted for 10.4 percent of the U.S. manufacturing GDP in 2016. Between 1997 and 2016, economic output from Texas manufacturers more than doubled the nation’s manufacturing gains by 40 percent. Last year, Texas manufacturers contributed $226 billion to the state’s economy and $210 billion in exports. The state’s GDP adjusted for inflation grew by 98 percent over the past two decades, even though between 1997 and 2016 manufacturing jobs dropped by 19 percent because of automation. Last year, the state accounted for 858,000 direct manufacturing jobs plus another 2.2 million indirectly created or supported by this sector.

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