Texas factory growth moderates as raw-material cost pressure remains high

Texas manufacturing continued to expand in October, but at a slower pace than in September, according to the Federal Reserve Bank of Dallas survey published October 26. The production index, a key indicator of state factory conditions, fell 13.7 points to 15.8 yet remained above its long-run series average. The Dallas Fed described that combination as slower but still solid growth. The index does not measure a percentage change in statewide output: it is a diffusion measure derived from firms’ reports of whether conditions increased or decreased over the prior month. Its positive reading means increases were more common than decreases among respondents.

Other current-activity measures weakened more sharply. The new-orders index dropped 21.4 points to 9.3 from 30.7 in September, while shipments fell 16.4 points to 8.4 and capacity utilization declined 10.2 points to 13.7. Unfilled orders also eased, from 22.7 to 10.1. The survey table showed 22.9 percent of respondents reporting higher new orders and 13.6 percent reporting lower orders; almost two-thirds said orders were unchanged. That distribution helps explain why the index remained positive even after its steep monthly fall. The results point to slower expansion, not a contraction in the aggregate indicator.

Business sentiment moved differently from production. The general business activity index rose to 13.4 from 9.8, and the company outlook index increased to 16.1 from 8.7. Uncertainty about the outlook edged down to 7.9 from 11.3. Employment remained in expansion territory but cooled: the employment index slipped to 11.6 from 15.1, while the hours-worked index rose to 10.1 from 5.6. Capital expenditures moved up to 11.9 from 8.5. These positive indexes indicate that reports of improvement outweighed reports of deterioration for each measure; they are not counts of jobs created, hours added or dollars invested.

Input costs were a prominent pressure in the responses. The raw-material prices index increased to 55.3 from 52.2, well above its series average of 28.1. The finished-goods prices index rose to 29.9 from 27.6. In contrast, the wages-and-benefits index fell to 20.8 from 27.4. The survey’s comment section illustrates the varied explanations firms offered: one beverage and tobacco manufacturer described supplier cost increases, including diesel-related charges, as squeezing already narrow profitability; a transportation-equipment respondent said fuel and domestic product costs were slowing a freight-market recovery. These are individual business comments, not a representative estimate of every firm’s experience.

The forward-looking measures remained positive. The future production index was 39.4, little changed from 40.3, while the future general business activity index rose to 38.1 from 20.8. The survey is based on responses collected October 13–21: 64 of 114 Texas manufacturers contacted submitted answers. The Dallas Fed calculates each index as the percentage reporting an increase minus the percentage reporting a decrease, with seasonal adjustment where needed. The next release is scheduled for November 30. The October results therefore describe one month’s reported direction and expectations six months ahead; they do not establish the outcome for Texas manufacturing as a whole or predict future national output. The release also presents unadjusted firm-level response shares alongside the indexes, allowing readers to distinguish a change in the balance measure from the proportion of firms reporting a particular direction.