Manufacturing Activity Slows Down in Texas

By November 28, 2011Economy

The Federal Reserve Bank of Dallas reported that manufacturing activity in Texas fell in November. While the index for general business conditions rose from 2.3 in October to 3.2 in November, the indicators for both production and new orders contracted for the month. Production declined from 4.1 to -5.1, and new orders went from 8.3 to -5.1.  Capacity utilization, inventories and shipments also contracted. Over the past few months, the trend has been positive, as reflected in the much-improved business conditions readings, and yet, today’s survey suggests the pace of growth has slowed down.

Some measures were more encouraging. Employment and capital expenditures, for instance, remain positive, even as their pace weakened in November. In addition, more of the respondents planned to increase wages and benefits than last month.

To the extent that manufacturing activity has slowed down, the anticipation, however, is that this will be temporary. Indeed, manufacturers in the Texas district remain optimistic about production, new orders, employment and capital spending moving into 2012. Many of these indicators dropped slightly from October, and yet, each of them reflects strong growth six months from now. The forward-looking general business conditions index declined from 25.3 in October to 23.0 in November, with the measure for new orders dropping from 39.7 to 32.7.

These numbers are mostly consistent with other regional surveys on manufacturing showing improvements in manufacturing activity from a few months ago and optimism moving ahead. With that said, the lower new orders and production figures reflect continued anxieties about the economy. This cautious sentiment is reflected in the selected comments from those taking the survey. In particular, one chemical manufacturer summed it up for a lot of respondents when they said, “We don’t think the situation will stabilize, much less improve, until the governments in Europe and the U.S. government get their acts together.”

While manufacturers in Texas expect to continue to grow, it is clear that they are closely following a number of headwinds that might derail their prospects.

Chad Moutray

Chad Moutray

Chad Moutray is chief economist for the National Association of Manufacturers (NAM), where he serves as the NAM’s economic forecaster and spokesperson on economic issues. He frequently comments on current economic conditions for manufacturers through professional presentations and media interviews. He has appeared on Bloomberg, CNBC, C-SPAN, Fox Business and Fox News, among other news outlets.
Chad Moutray

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