The Federal Reserve Bank of Dallas reported that manufacturing activity in Texas improved in February. The composite index of general business conditions rose from 15.3 in January to 17.8 in February. It had declined in December and was generally weaker – with either contracting activity or slow growth – for the second two-thirds of 2011. As such, the uptick in the first two months of 2012 is welcome news.
Behind the top-line figure, though, there was some mixed news. Production, capacity utilization, employment and capital expenditures grew in the month. Some of the manufacturing indicators eased somewhat from January. This would include new orders, shipments and raw material inventories. In each case they expanded, but just at a slower rate. Pricing pressures also rose.
In their forward-looking assessments, respondents remained optimistic about future activity, but these figures also eased a little. For instance, the future composite index fell from 22.3 to 15.9. Still, the level of activity reflected in these numbers remains high. On the production question, 47.6 percent of those answering the survey reported higher activity in the next six months, with 45.6 percent indicating no change from their expectations cited last month.
Therefore, one should not over-interpret the slight decline; it is clear that manufacturers are overwhelming optimistic about this year in these numbers. These findings are also clear when you look at the sample comments. 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.
In other news, economists from the National Association for Business Economists (NABE) see improvements in the underlying economy, according to their latest Outlook Survey. In general, business economists expect for real GDP to grow 2.4 percent in 2012 and 2.8 percent in 2013. Industrial production should increase by 3.5 percent this year.
They also anticipate stronger employment growth, with the unemployment rate falling to 8.1 percent by the end of this year. Nonfarm payrolls are expected to grow by 170,000 on average each month. Other expectations include gradual improvements in the housing sector, slower growth for exports, mainly due to global headwinds, and modest growth in consumer spending. Auto sales should be strong, particularly with high pent-up demand.
Chad Moutray is chief economist, National Association of Manufacturers.
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