The Federal Reserve Bank of Dallas said that growth in manufacturing activity eased in February. In fact, the index for a company’s own outlook declined from 15.9 in January to 3.4 in February, with the percentage of survey respondents indicating improvements from the previous month dropping from 25.4 percent to 17.2 percent. In essence, manufacturers were less confident in the economic environment in February. Still, the longer-term trend remains positive, with the sector expanding each month since May 2013 and outlook for 2014 continuing to be mostly upbeat.
The February data were mixed, but mostly encouraging. New orders decelerated from 14.4 to 9.5, with the percentage of those saying that sales had risen for the months dropping from 31.7 percent to 28.1 percent. At the same time, other indicators suggested that production (up from 7.1 to 10.8), shipments (up from 9.2 to 13.3), employment (up from 8.6 to 9.9), and hours worked (up from 3.4 to 12.0).
As such, the drop in outlook stemmed mostly from slower sales, which was probably due mostly to weather. The sample comments tend to support that view. But, the data also show that manufacturers continued to increase output, hiring, and capital spending in the Dallas Fed region despite softness in new orders and weather-related effects elsewhere in the country.
Looking ahead six months, Texas manufacturers remain positive about future levels of activity. For example, 48.5 percent of respondents anticipate higher sales over the coming months. To be fair, this was down from 55.8 percent the month before, mirroring the drop in sentiment discussed above. Yet, they still indicate strong growth ahead. Similar findings can be noted for production, capacity utilization, shipments, employment, and capital spending over the next six months.
Chad Moutray is the chief economist, National Association of Manufacturers.