Texas manufacturing activity expands at faster pace in July, production index rises

Texas Manufacturing Outlook Survey: In July, Texas factory activity expanded at a faster pace after weakening the prior month. The production index increased from 4.1 to 10.1, moving above the series average of 9.6. The new orders index rose 4.1 points to 6.4, while the capacity utilization index stepped down 1.4 points to 5.9, remaining below the series average of 7.5. Meanwhile, the shipments index moved up 1.7 points to 8.8, climbing above the series average of 7.8. The Eleventh District consists of all of Texas, Louisiana and southern New Mexico.

Perceptions of manufacturing business conditions strengthened in July as the general business activity index increased 1.3 points to 1.3. At the same time, the company outlook index jumped 11.1 points to 13.4. Moreover, the uncertainty index declined 4.5 points to 6.4, remaining below the series average of 16.7.

Labor market indicators suggested slightly weaker growth in head counts and the workweek in July, with the employment index ticking down 1.7 points to 12.2, and the hours worked index moving down 1.6 points to 4.3. Of those surveyed, 19.0% noted net hiring, while a smaller percentage (6.8%) noted net layoffs.

Price pressures weakened, while wage pressures strengthened in July. The indices for prices paid for raw materials and prices received for finished goods both contracted, decreasing 1.1 points to 41.3 and 3.0 points to 25.6, respectively, as both remained above series averages. The wages and benefits index rose 4.8 points to 30.8, remaining well above the series average of 21.1.

The outlook for future manufacturing activity weakened slightly in July, with the future production index ticking down 0.2 points to 34.6, remaining below the series average of 36.0. Furthermore, the future company outlook index inched up 0.2 points to 28.7, while the future general business activity index moved up 0.6 points to 26.5, remaining above the series average of 12.4.

In July, survey respondents were asked special questions about profit margin changes and changes in demand expectations. Nearly 27% of firms reported an increase in profit margins from the start of the year, 16% reported no change and 57% reported a decrease. When asked about demand for their products for the remainder of the year, one-third of firms expect no change, 49% expect higher demand and 18% predict lower demand.