Dallas Fed Manufacturing Outlook: Business Conditions Contract Again

February 29, 2016

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This morning we got the most recent Dallas Fed Texas Manufacturing Outlook Survey (TMOS). The latest index came in at -31.8, a 3 point increase from last month’s revised -34.6.

The Investing.com forecast was for a reading of -30.0.

Here is an excerpt from the latest report:

Texas factory activity contracted again in February, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, remained negative but edged up from -10.2 to -8.5, suggesting output declined but at a slightly softer pace than in January.

Most other indexes of current manufacturing activity also indicated further contraction in February. The new orders index fell 8 points to -17.6, reaching its lowest level since May 2009, when Texas was in recession. The growth rate of ordersindex remained strongly negative at -17.4. The capacity utilization index was largely unchanged at -8.2. Meanwhile, theshipments index rose 10 points to -1.1 after plunging last month.

Perceptions of broader business conditions remained strongly negative in February. The general business activity index has been negative for more than a year and came in at -31.8, up slightly from the January reading. The company outlook index posted a third negative reading in a row but edged up to -17.4. More than a quarter of manufacturers noted their outlook had worsened from January.

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 Dallas Fed on the TMOS importance:

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.

Here is a snapshot of the complete TMOS.

The next chart is an overlay of the General Index and the Future Outlook Index — the outlook six months ahead.

For comparison, here is the latest ISM Manufacturing survey.

Let’s compare all five Regional Manufacturing indicators. Here is a three-month moving average overlay of each since 2001 (for those with data).

Here is the same chart including the average of the five. Readers will notice the range in expansion and contraction between all regions – this averages out to approximately zero for the average, which is flat and neither expanding nor contracting.