Dallas Fed Manufacturing Business Index Continues to Expand

Overall business activity in Texas turned positive in November for the first time since December 2014, according to the Dallas Federal Reserve. The production index increased to 8.8 from 6.7 previously with the new orders component strengthening to -1.4 from -3.5 as the pace of decline in unfilled orders also slowed significantly on the month.

Texas factory activity increased again in November, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, posted a fifth consecutive positive reading and edged up to 8.8.

Texas is important to the nation’s manufacturing output. The state produced $159 billion in manufactured goods in 2008, roughly 9.5 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 10 percent of the nation’s computer and electronics products and nonmetallic mineral products, such as brick, glass and cement.

Other measures of current manufacturing activity showed mixed movements. The new orders and growth rate of orders indexes posted their third consecutive negative readings in November but moved up, coming in at -1.4 and -0.8, respectively. The capacity utilization index rose three points to 3.6, while the shipments index dipped slightly negative to -1.9.

There was a further increase in the prices paid component to 18.2 from 13.7 previously and the prices received index also strengthened to 8.0 from 1.2, the highest reading since November 2014 as wages and benefits continued to increase.

Labor market measures indicated increased employment levels and longer workweeks. The employment index came in at 4.5 after a near-zero reading last month. Seventeen percent of firms noted net hiring, compared with 13 percent noting net layoffs. The hours worked index returned to positive territory in November, coming in at 2.5.

There was also a sharp improvement in the six-month outlook to 31.6 from 4.8 previously with strong growth in orders and production indices. This was the strongest headline reading since January 2011, which will reinforce improved business confidence.

Expectations regarding future business conditions improved notably in November. e index of future general business activity advanced 27 points to 31.6. The index of future company outlook also jumped up more than 20 points, coming in at 34.9. Other indexes for future manufacturing activity pushed markedly higher in to positive territory.

Prices and wages rose this month. Input cost increases accelerated slightly, with the raw materials prices index rising from 13.7 to 18.2. The finished goods prices index posted a second positive reading, climbing from 1.2 to 8.0, and indicates a likely end to the period of deflation in manufactured goods prices that began in 2015. Wages and benefits continued to rise, with the index edging up to 18.4.