Texas manufacturing activity slows to 2020 low, survey shows

Feb. 27 (UPI) -- A manufacturing survey published Monday by the Federal Reserve Bank of Dallas found the state's factory activity contracted for the first time since May 2020.

The 100 business executives from the manufacturing sector in Texas had a decidedly pessimistic outlook for February. The Dallas Fed uses these survey results to create an index that weighs positive responses against negative ones, with a metric above zero reflecting optimism.

"The production index, a key measure of state manufacturing conditions, edged down from 0.2 to -2.8, a reading suggestive of a modest contraction in output," the bank stated.

The Dallas Fed said that rate marks the first contraction since May 2020, just as the outbreak of COVID-19 was developing into a U.S. pandemic.

Known more for its oil and gas riches, the manufacturing sector in Texas is among the biggest in the country. The Texas Comptroller of Public Accounts, the state agency charged with collecting tax revenue, estimates manufacturing accounts for 13% of the state's total economic output. At $241 billion in 2019, the manufacturing sector was larger than the entire economy of Portugal.

For executives working in the transportation equipment sector, the outlook is decidedly dire.

"There is nothing positive with respect to the economy," one respondent said.

Data from the Commerce Department showed so-called core consumer inflation, which strips out the more volatile prices of energy and food, increased by 0.1% from December levels to 6.5% last month, frustrating officials at the Federal Reserve who are trying to arrest inflation by increasing their borrowing rates.

Loretta Mester, the president of the Federal Reserve Bank of Cleveland, said Friday recent data show some of the Fed's policies are working -- inflation was closer to 9% last summer -- but it's still "too high."

"We are not sure if it's the Federal Reserve jacking with interest rates, or else some sort of cyclical slowdown, but it feels like business has ground to a halt," one executive told the Dallas Fed.

Ataman Ozyildirim, a senior director of economics at The Conference Board, said there was a decline in new orders from the total U.S. manufacturing sector, consumer sentiment was souring, and business conditions were deteriorating.

The Conference Board in mid-February reported that its Leading Economic Index declined by 0.3% in January, following an 0.8% contraction in December. Between July and January, the index is down 3.6%, compared with a 2.4% decline from January 2022 to July.

"While the LEI continues to signal recession in the near term, indicators related to the labor market -- including employment and personal income -- remain robust so far," Ozyildirim said. "Nonetheless, The Conference Board still expects high inflation, rising interest rates and contracting consumer spending to tip the U.S. economy into recession in 2023."