May 2014 Texas Manufacturing Survey Rate of Growth Moderates

Of the five Federal Reserve districts which have released their May manufacturing surveys, all are forecasting growth. A complete summary follows. The market expected this survey index at 9.0 to 16.0 (consensus 9.6) versus the 11.0 actual [note that values above zero represent expansion].

Texas factory activity increased again in May, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, fell from 24.7 to 11, indicating output grew but not strongly as in April.

Other measures of current manufacturing activity also reflected slower growth. The new orders index fell sharply to 3.8, hitting its lowest level this year. The capacity utilization index fell 9 points to 9.4 but remained slightly above its average level over the history of the survey. The shipments index edged down to 11, a reading also slightly above its overall average.

Perceptions of broader business conditions were less optimistic in May. The general business activity index remained elevated but moved down from 11.7 to 8. The company outlook index plummeted to 4.1 after rising sharply in April. Although both these indexes fell from last month, both were up strongly from their negative readings a year ago.

Labor market indicators reflected a tapering of growth in employment levels and workweek length. The May employment index dropped to 2.9, its lowest reading in nearly a year. Thirteen percent of firms reported net hiring compared with more than 10 percent reporting net layoffs. The hours worked index fell from 13.9 to 2.8, indicating only a slight increase in workweek length from April.

Strong upward pressure was seen for input prices and wages in May, while price pressures eased for selling prices. The raw materials price index jumped 16 points to 26.3 after falling sharply to an 8-month low last month. Meanwhile, the finished goods price index declined from 8 to 5.6, reaching its lowest level in six months. Looking ahead, 41 percent of respondents anticipate further increases in raw materials prices over the next six months, while 30 percent expect higher finished goods prices. The wages and benefits index held fairly steady at 20.1. This index has been consistently elevated since December, suggesting six months of strong upward pressure on compensation costs.

Expectations regarding future business conditions were a little less optimistic in May. The index of future general business activity fell nearly 13 points to 11.8, while the index of future company outlook fell from 26.9 to 20. Indexes for future manufacturing moved down but remained in solid positive territory.

Source: Dallas Fed

Summary of all Federal Reserve Districts Manufacturing:

Richmond Fed (hyperlink to reports):

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Kansas Fed (hyperlink to reports):

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Dallas Fed (hyperlink to reports):

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Philly Fed (hyperlink to reports):

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New York Fed (hyperlink to reports):

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Federal Reserve Industrial Production – Actual Data (hyperlink to report)

Holding this and other survey’s Econintersect follows accountable for their predictions, the following graph compares the hard data from Industrial Products manufacturing subindex (dark blue bar) and US Census manufacturing shipments (lighter blue bar) to the Dallas Fed survey (light blue bar).

Comparing Surveys to Hard Data

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In the above graphic, hard data is the long bars, and surveys are the short bars. The arrows on the left side are the key to growth or contraction.