Dallas Fed Manufacturing: Conditions Worsen to 8-Month Low

The Dallas Fed released its Texas Manufacturing Outlook Survey (TMOS) for March. The general business activity index came in at -16.3, its lowest level since July. This marks an 8 point decline from the previous month and the second straight monthly decline.

Texas factory activity rose in March after declining in February, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose 15 points to 6.0.

Other measures of manufacturing activity were mixed. The new orders index moved up three points to zero, a reading that suggests demand in March was similar to February. The capacity utilization index remained negative but pushed up six points to -2.3. The shipments index was positive and little changed at 6.1.

Perceptions of broader business conditions continued to worsen in March. The general business activity index fell eight points to -16.3, its lowest reading since last July. The company outlook index also retreated to an eight-month low of -10.7. The outlook uncertainty index pushed up seven points to 36.2, its highest reading since fall 2022.

Labor market measures suggested a decrease in head counts and slightly shorter workweeks this month. The employment index slipped further into negative territory, falling four points to -4.6, with 12 percent of firms noting net hiring and 16 percent noting net layoffs. The hours worked index shot up 11 points but remained slightly negative at -2.9.

Input cost pressures edged higher in March, while wages and selling price pressures remained stable. The raw materials prices index ticked up three points to 37.7, a multiyear high. The finished goods prices index was largely unchanged at 6.3, and the wages and benefits index held steady at 16.0, below its average reading.

Background on the Texas Manufacturing Outlook Survey (TMOS)

Monthly data for this indicator only dates back to 2004, so it is difficult to see the full potential of this indicator without several business cycles of data. Nevertheless, it is an interesting and important regional manufacturing indicator. The TMOS is a monthly survey of 100 Texas manufacturers that provides an assessment on the state's factory activity. The survey asks firms to whether output, employment, orders, prices, and other indicators have increased, decreased, or remained unchanged over the previous month. Results are aggregated into balance indexes where negative readings indicator contractions while positive ones indicate expansion.

The Dallas Fed on importance of Texas Manufacturing:

Texas is important to the nation’s manufacturing output. The state produced $296 billion in manufactured goods in 2023, roughly 11 percent of the country’s manufacturing output. Texas ranks second behind California in factory production and first as an exporter of manufactured goods.

Texas turns out a large share of the country’s production of petroleum and coal products, reflecting the significance of the region’s refining industry. Texas also produces over 13 percent of the nation’s chemical products and over 10 percent of nonmetallic mineral products, such as brick, glass and cement.

Here is a snapshot of the complete TMOS.

Texas Manufacturing Survey Future Outlook

The next chart is an overlay of the general business activity index and the future outlook index — the outlook six months ahead. Future general business activity tumbled to -6.6 in March, its lowest level in over a year.

Expectations for manufacturing activity six months from now were mixed. The future production index was steady at 27.6, while the future general business activity plummeted 14 points to -6.6, its first negative reading since May 2024. Most other indexes of future manufacturing activity remained positive but slipped further below average.