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Dallas Fed Survey: Texas Manufacturing Recovery Continues

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Texas factory activity continued to expand in July following a record contraction in the spring, according to business executives responding to the Federal Reserve Bank of Dallas’ Texas Manufacturing Outlook Survey.

“Texas manufacturing activity continued to recover in July, with demand and production growth accelerating slightly from June. But business is still below normal levels, according to nearly three-fourths of responding manufacturers,” said Emily Kerr, Dallas Fed senior business economist. “That group reports that revenues are off by more than 30 percent from a typical July, on average.

“Job losses in manufacturing subsided this month as more firms noted net hiring than noted net layoffs for the first time since January. Outlooks remained positive for a second month in a row, and most manufacturers expect increased demand and production six months from now.”

Additional takeaways from this month’s survey:

  • The production index inched up from 13.6 to 16.1, suggesting a slight pickup in the pace of output growth.
  • The new orders index advanced four points to 6.9.
  • The general business activity index remained slightly negative, edging up from -6.1 to -3.0.
  • Input and labor costs continued to increase, while selling prices were fairly flat in July.

Nationally, orders for big-ticket manufactured goods rose a solid 7.3% in June, the second big monthly gain as manufacturing tries to climb out of a spring slump triggered by the coronavirus pandemic.

The Commerce Department said Monday that the June gain in durable goods orders, which was better than expected, followed an even bigger 15.1% increase in May. Those two increases came after sharp declines in March and April as factories shut down.

A closely watched gauge of business investment posted a strong 3.3% increase in June after a 1.6% rise in May.

Coronavirus Impact on Manufacturing, Services

To continue to track the impact COVID-19 is having on businesses in Texas, both in the manufacturing and service sectors, the Dallas Fed asked new special questions in its July Texas Business Outlook Surveys.  The received replies from roughly 400 business executives from July 14-22.

“The COVID-19 pandemic continues to have a negative impact across the state, even as some sectors have started recovering from steep declines in business earlier this year,” Kerr said. “Nearly three-fourths of firms say their current revenues are lower than a typical July, by about 30 percent on average.

“Employment has also been affected: Roughly half of firms say their headcounts are lower than they were pre-COVID, by about 30 percent on average. While contacts shared several challenges to business operations in this current environment, more than 90 percent said it is not likely they will permanently shut down their business within the next 12 months.”

Other takeaways from the COVID-19 survey:

  • The top factor restraining revenue is weak demand, followed by limited operating capacity due to state/local restrictions and limited operating capacity due to staffing shortages. For manufacturers and retailers, supply chain disruptions were also a key factor.
  • The most common step taken over the past month in response to the recent rise in COVID-19 infections was increased spending on health and safety equipment, followed by decreased number of employees working onsite and postponed efforts to bring telecommuting workers back onsite.
  • The top logistical challenges to business operation are managing employee COVID-19 screening and quarantine/sick leave rules, enforcing health protocols among employees, and maintaining health protocols at facilities.

Texas produces around 10 percent of total manufactured goods in the United States, ranking second behind California in factory production. For more information about the survey, visit DallasFed.org.

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