The Texas Manufacturing Outlook Survey
The Texas Manufacturing Outlook Survey (or TMOS) was released by the Dallas Fed on Monday, February 24. Ninety-three Texas manufacturers responded to February’s survey. The survey’s headline numbers, the Business Activity Index and the Production Index, came in at 0.3 and 10.8, respectively. The former fell short of consensus estimates at 2.5, and the latter reading beat consensus estimates of 7.1. These readings imply growth at a slightly stronger pace. Texas factory activity increased for the tenth month in a row in February, according to business executives responding to the survey.
What is the Texas Manufacturing Outlook Survey (or TMOS)?
The Texas Manufacturing Outlook Survey (or TMOS) is a monthly survey conducted by the Dallas Fed to provide an assessment of the state’s manufacturing activity. The survey questions respondents on whether output, employment, orders, prices, and other indicators increased, decreased, or remained unchanged over the previous month. These answers are then 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.
The capacity utilization index increased to 9.1, with about a quarter of manufacturers reporting an increase. The new orders index continued to indicate demand growth at 9.5—down from 14.4 in January but higher than the levels seen in the latter part of 2013. The general business activity index fell to zero after eight consecutive positive readings. This implied that the general perceptions for business conditions had declined.
Labor market indicators reflected continued employment growth and longer workweeks. The February employment index increased for the third consecutive month to 9.9, and 18% of firms reported net hiring, compared with 8% reporting net layoffs. The hours worked index increased from 3.4 to 12—its highest level in over two and a half years.
Costs and prices trend upward as the wages and benefits index achieves a record
The raw materials price index fell to 21.9 but was higher than most of 2013. The finished goods price index remained at 11.2—more than the average over the last two years. Of respondents, 43% and 33% anticipated further increases in raw materials costs and higher finished goods prices, respectively, over the next six months. The pace of labor costs increases also accelerated, with the wages and benefits index rising from 21.6 to 25.8—a six-year record.
While the results of the TMOS were limited to Texas, another indicator released on Friday will touch all sectors and states in the economy and have a significant impact on bond markets. Move on to Part 5 of this series to learn more.