Texas Factory Output Slows in January; Manufacturing Sector's Activity Stalls - Dallas Fed

By Xavier Fontdegloria

Factory production in Texas slowed in January compared with the previous month, signaling that the state's industrial sector entered 2022 on a weaker footing, data from a survey compiled by the Federal Reserve Bank of Dallas showed Monday.

The production index of the Texas Manufacturing Outlook Survey--a key measure of state manufacturing conditions--decreased to 16.6 in January from 26.0 in December, an eight-month low, signaling that output continued to grow but at a softer pace than the previous few months.

However, overall manufacturing activity barely grew in January. The index for general business activity--which assesses broader business conditions in the manufacturing sector--fell to 2.0 from 7.8, the lowest level since July 2020, missing the 11.0 consensus forecast from economists polled by FactSet. A positive index signals growth, while a negative reading suggests activity is declining.

Uncertainty regarding outlooks escalated further, with the index pushing up about 12 points to 30.8, its highest reading since April 2020 after the initial onset of the pandemic, the Dallas Fed said.

Demand for goods in the U.S. remains strong, but supply-chain bottlenecks have been constraining production. Recent surveys show that these strains could be easing somewhat, but the Covid-19 Omicron variant adds to woes amid increasing worker absenteeism due to isolations.

"The omicron surge and its impact on the workforce and consumer spending have remained a concern," said one respondent from the chemical manufacturing industry in Texas.

Demand for goods held broadly steady at solid levels, according to the Dallas Fed survey. The new orders index edged up to 20.0 from 19.8 a month earlier, and the growth rate of orders index declined slightly to 12.6 from 13.4.

The shipments index fell sharply to 8.6 from 20.5 the previous month, while the capacity utilization index decreased to 12.0 from 25.4.

Supply-chain bottlenecks showed further signs of easing. The delivery times index fell to 17.9 from 25.9 the prior month, in a sign that vendor lead times continued to lengthen but less so than in December.

Price pressures eased slightly. The index which gauges the prices paid for raw materials fell to 62.1 from 67.4, and the index for finished goods prices declined to 37.1 from 42.2.

Labor market measures indicated robust employment growth and longer workweeks, the report said. The employment index fell to 27.7 from 31.1, but remained elevated and signaled that factories continued to create jobs. The hours worked index increased to 21.3 from 19.6.

Expectations regarding future activity remained positive, with the future production index receding slightly to 38.0, and the future general business activity index largely unchanged at 16.5.

Write to Xavier Fontdegloria at [e-mail]

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(END) Dow Jones Newswires

01-31-22 1114ET