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U.S. May Dallas Fed Business Outlook Report (Text)

May 29, 2012

The following is the text of the Texas manufacturing activity from the Federal Reserve Bank of Dallas.

Texas factory activity continued to increase in May, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, held steady at 5.5, suggesting growth continued at about the same pace as last month.

Other measures of current manufacturing conditions indicated flat or increased activity in May. The new orders index posted a near-zero reading for the third consecutive month, suggesting order volumes have stagnated since February. Shipment volumes were flat again in May, with the index near zero for the second month in a row. The capacity utilization index came in at 5, up from 1.4 in April, with one- quarter of respondents noting increases.

Perceptions of broader economic conditions were mixed in May. The general business activity index remained negative for the second consecutive month and edged down from -3.4 to -5.1. Fifteen percent of firms noted improvement in the level of business activity, while 20 percent noted a worsening. The company outlook index rebounded into positive territory after turning negative last month, coming in at a reading of 4.7. Twenty-one percent of manufacturers noted an improved outlook, up markedly from 11 percent in April.

Labor market indicators reflected slightly slower labor demand growth and shorter workweeks. Employment grew again in May, but the pace continued to slow; the index receded from 11.8 to 8.5. Eighteen percent of firms reported hiring new workers, while 10 percent reported layoffs. The hours worked index remained negative but edged up from -4.6 to -2.2.

Input prices and wages continued to increase in May, but selling prices were flat. The raw materials price index was 20.2, down slightly from 21.2 in April. The wages and benefits index moved up from 15.2 to 20, suggesting stronger upward pressure on compensation costs. Selling prices were roughly unchanged in May, as the finished goods price index was near zero. Looking ahead, 41 percent of respondents anticipate further increases in raw materials prices over the next six months, while 23 percent expect higher finished goods prices.

Expectations regarding future business conditions were less optimistic in May. The index of future general business activity dropped from 15.7 to 4.3. The index of future company outlook came in at 11.4, down slightly from 14.4 in April. Other indexes for future manufacturing activity also decreased, although all remained in strong positive territory.

The Dallas Fed conducts the Texas Manufacturing Outlook Survey monthly to obtain a timely assessment of the state’s factory activity. Data were collected May 15-23, and 86 Texas manufacturers responded to the survey. Firms are asked whether output, employment, orders, prices and other indicators increased, decreased or remained unchanged over the previous month.

Survey responses are used to calculate an index for each indicator. Each index is calculated by subtracting the percentage of respondents reporting a decrease from the percentage reporting an increase. When the share of firms reporting an increase exceeds the share reporting a decrease, the index will be greater than zero, suggesting the indicator has increased over the prior month. If the share of firms reporting a decrease exceeds the share reporting an increase, the index will be below zero, suggesting the indicator has decreased over the prior month. An index will be zero when the number of firms reporting an increase is equal to the number of firms reporting a decrease.

Next release: June 25, 2012

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