Texas Manufacturing Activity Remains Soft, While the Chicago Regions Expands on Autos

By August 27, 2012Economy

The Federal Reserve Bank of Dallas provided a mostly mixed picture on manufacturing for its region. Respondents’ views about the overall economic climate improved slightly, but with continued slower growth. The general business activity index rose from -13.2 in July to -1.6 in August, with just over 22 percent of manufacturers in the region suggesting conditions had worsened. Over 57 percent reported no change. At the same time, manufacturers were slightly more upbeat about their own company’s outlook, with that index up from 1.6 to 4.1.

Still, these figures show that the manufacturing sector in Texas remains soft. New orders are essentially unchanged from the previous month, with the growth of production and capacity utilization easing and shipments contracting. Inventories were rising. Raw material prices, which had decelerated in recent months, began to move higher again.

Despite a slowing economic environment for manufacturers in the region, employment and capital spending actually ticked up in August. Twenty-four percent of those taking the survey said that they were hiring compared to almost 10 percent who were laying people off. This increased investment in labor and capital could be the result of increased expectations for the future, with the forward-looking company outlook increasing between July and August. Expectations of company performance six months from now rose, along with new orders, production, shipments, employment, and investment.

Interestingly, this increase in the company’s future outlook corresponds with the anticipation of a worsening macroeconomic environment. Just 15 percent of manufacturers in the region expect for the general business outlook to improve over the next six months, with nearly two-thirds expecting no change. Given the now-constant discussion about the fiscal cliff, this is not surprising. Overall, the Dallas Fed’s survey is one more regional analysis showing weak levels of manufacturing activity, following similar reports from the Kansas City, New York, and Philadelphia Federal Reserves.

However, not every region is struggling. The Chicago Federal Reserve Bank’s Midwest Manufacturing Index was higher in July, lifted by increased auto output. The index rose from 93.9 in June to 95.6 in July, or 1.8 percent. The main driver was a significant boost in production in the motor vehicle sector, with the auto manufacturing index jumping from 96.5 to 102.6. At the same time, the broader manufacturing sector in the Midwest was less robust. A slight gain the resource sector was counterbalanced by declines in the steel and machinery sectors.

In general, the Midwest has been one of the strongest regions of the country for manufacturing. Industrial production in the region was 12.5 percent higher than one year ago; this compares to U.S. production’s 5.2 percent gain year-over-year. Much of this was due to the heavy concentration of durable goods manufacturing in the region, with motor vehicles, machinery, and metals boosting output and employment throughout the Chicago District.

Chad Moutray is chief economist, National Association of Manufacturers.

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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