Dallas Fed Manufacturing: Business Conditions Continued to Worsen in May

The Dallas Fed released its Texas Manufacturing Outlook Survey (TMOS) for May. The general business activity index rose nearly 21 points, its largest monthly increase since 2020, but remained in negative territory at -15.3. This marks the fourth straight month of worsening business conditions.

Texas factory activity held steady in May, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, retreated four points to a near-zero reading, indicating flat output this month after modest growth in March and April.

Other measures of manufacturing activity moved up, but some remained in contractionary territory. The new orders index remained negative, signaling contraction, but rose to -8.7 from -20.0. The capacity utilization index also stayed negative but edged up to -1.5. Meanwhile, the shipments index rebounded into positive territory after dipping negative last month, coming in at 0.5.

Perceptions of broader business conditions continued to worsen in May, though the indexes were less negative than last month. The general business activity index pushed up 21 points to -15.3. The company outlook index also remained negative but moved up, climbing to -11.3 from -28.3. The outlook uncertainty index retreated 34 points to 12.7, suggesting uncertainty continued to rise but not as notably as in April.

Labor market measures suggested a slight increase in head counts and shorter workweeks this month. The employment index moved up seven points to 3.5, with 12 percent of firms noting net hiring and 8 percent noting net layoffs. The hours worked index remained negative but ticked up to -3.6.

Higher-than-usual price pressures continued in May, while wage growth remained slightly subdued. The raw materials prices index fell 8 points to 40.7, and the finished goods prices index held steady at 15.1—both readings are well above average. Meanwhile, the wages and benefits index remained below average, largely unchanged at a reading of 15.0.

Press release

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 jumped back into positive territory at 1.3.

Expectations have increased for manufacturing activity six months from now. The future production index moved up 16 points to 31.1. The future general business activity index also rose 16 points, barely pushing into positive territory to a reading of 1.3. Other indexes of future manufacturing activity rose but remained below average.