Texas Manufacturers Report a Rebound in Activity in June

By June 24, 2013General

The Federal Reserve Bank of Dallas said that Texas manufacturers reported a rebound in activity in June. After two months of declines, the composite index of general business activity shifted from contracting sentiment (-10.5) to modest gains (6.5). Improving rates of sales and production helped increase confidence levels overall. For instance, the index for new orders rose from 6.2 to 13.0, with 36.0 percent of respondents saying that their sales had improved for the month. That figure was up from 28.7 percent who said the same in May. Still, the percentage who said that they were having declining new orders was essentially unchanged at 23.0 percent.

Many of the subcomponents followed this pattern, with the production index up from 11.2 to 17.1. This suggests strong gains in production activity, with 34.5 percent of respondents noting higher levels of production in June. Other measures that were higher included capacity utilization, shipments, and capital expenditures. With that said, hiring still lags behind. The index for employment improved from -6.3 to 0.2, but that figure mostly indicates a stalling in hiring. Regarding existing employees, the index for wages and salaries was higher.

There was a slight pickup in pricing pressures reported. The index for raw material costs rose from 6.4 to 14.3, a fairly sizable increase, but 80.0 percent of respondents said that their input prices did not change. The increase in the index stemmed from a decline in the percentage of those taking the survey saying that their costs had declined, down from 10.6 percent in May to zero in June.

The forward-looking measures indicated that manufacturers remain cautiously optimistic about the next six months, with improvements across-the-board. In terms of expectations, 42.2 percent of respondents anticipate increased new orders in the second half of this year, with 49.2 predicting higher production levels. Employment and capital spending levels are also forecasted to pickup.

Yet, despite this more-positive outlook in the survey questions, the sample comments show that continues to be some caution looking ahead. One computer and electronics manufacturer sums it up this way, “We have seen general broad-based improvements as we had hoped for. There are still some mixed signals coming through, but most are biased positively. We continue to remain hopeful for follow-through in the second half of the year, which has been elusive the past few years.”

Indeed, other comments tended to balance recent sales progress with a realistic view of possible headwinds. An individual from the fabricated metal manufacturer, for instance, noted the impact of the Affordable Care Act (ACA), saying, “Just when we see an increase in our manufacturing business for the last 12 months, we now must deal with considerable increases in medical premiums.” This latter point was one that was also observed in the latest NAM/IndustryWeek Survey of Manufacturers, which found that rising health costs were the top concern of respondents, cited by 82.2 percent of those taking the survey. With implementation of the ACA months away, business leaders are becoming increasing more anxious about it.

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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