Dallas Fed Survey: Texas manufacturing sector continues contraction

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Texas factory activity declined again in May, though at a slower pace than in April, according to business executives responding to the Federal Reserve Bank of Dallas’ Texas Manufacturing Outlook Survey released May 26.

“The contraction seen in the Texas manufacturing sector seems to have peaked in April, as the pace of decline slowed notably in May,” said Emily Kerr, Dallas Fed senior business economist. “The headline production index rebounded 28 points to -28.0. This negative reading indicates output declined for a third month in a row, but the upward movement in the index tells us the contraction is moderating. A bright spot in this month’s survey is certainly the indexes for future manufacturing activity—production, new orders, capacity utilization—which all returned to positive territory in May.”

Additional takeaways from this month’s survey:

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  • The new orders index advanced 38 points to -30.6, its highest reading in three months.
  • The general business activity index moved up from -74 to -49.2.
  • The company outlook index moved up nearly 30 points to -34.6, though only 12 percent of manufacturers noted improved outlooks.

Coronavirus Impact on Manufacturing, Services

To continue to track the impact COVID-19 is having on businesses in Texas, executives in both the manufacturing and service sectors were asked new special questions in the May Texas Business Outlook Surveys. Roughly 400 business executives responded April 12-20.

“COVID-19 is having a widespread negative impact across the state,” Kerr said. “More than 80 percent of firms say their current revenues are lower than a typical May—by about 40 percent on average. In Texas, sharply lower oil prices present an additional headwind. Nearly half of firms note their revenues have been negatively impacted by reduced activity in the energy industry. Overall, roughly three-fourths of firms say they can survive for at least six months if current revenue levels were to continue.”

Other takeaways from the COVID-19 survey:

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  • Sixty percent of firms applied for a Paycheck Protection Program loan, with 93 percent having already received funds, which most said allowed them to prevent layoffs and wage reductions.
  • More than two-thirds of firms increased working from home in response to COVID-19 and more than 40 percent reduced work hours. Twenty percent furloughed workers and 19 percent implemented layoffs.
  • Among businesses subject to mandated shutdowns, 45 percent have reopened to the maximum allowable level in light of Gov. Greg Abbott’s “Open Texas” plan.

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.