The Texas Manufacturing Outlook Survey from the Dallas Federal Reserve Bank found that overall production rose in September, but respondents were more negative about the general business climate.
The index for production rose from 1.1 in August to 5.9 in September, suggesting a modest uptick in activity. Other measures were mixed. While capacity utilization improved (from -2.8 to -1.3), it continues to shrink. Likewise, the index for new orders remains positive, but slightly decreased for the month (from 4.8 to 3.6). Capital spending mirrored new orders, expanded but at a slower pace.
Employment figures were a bright spot, with hiring picking up in September. The index rose from 5.4 to 13.4, with wages and hours worked also improving for the month.
Pricing pressures remained a challenge for manufacturers. The index for raw material prices was virtually unchanged for the month at 23.5. Still, this figure signifies strong growth in producer prices, which have been elevated for much of this year. Compounding this problem is the inability of many businesses to recoup these higher costs from their consumers. While the index for prices received rose in September (from -0.5 to 3.9), the differential is enough to put a squeeze on prices.
Despite the growth in production, those completing the survey were more downbeat on the overall current and future business environment. The index on general current business activity fell from -11.4 to -14.4. Similarly, the index for the current company outlook remained just above zero at 0.5, declining from 7.2 in August.
Looking ahead six months, respondents were positive (albeit less so than in August) for their company’s outlook, but their forecasts for the larger economy were negative, with the general business activity falling from 2.9 to -1.5. The company-specific measures were reflected a more optimistic tone than the macroeconomic tone might suggest, and in fact, manufacturers in the Texas region are predicting relatively strong growth in production, new orders, shipments, employment and capital expenditures. Elevated prices are expected to remain a problem.
Chad Moutray is chief economist, National Association of Manufacturers.
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