Dallas Fed says Texas manufacturing growth has cooled from fast expansion to average levels

Factory growth cools in Texas

Texas factories are still growing, but the pace no longer looks as fast as it did in April. The Dallas Fed’s May survey shows output moving ahead more moderately.

That shift matters because manufacturing helps shape jobs, prices, orders, and local business confidence. For Texas producers, the latest report points to growth that is steadier than strong.

The production index slowed

The Dallas Fed’s production index fell 10 points in May, landing at 9.4. That reading still points to expansion, but at a more average pace.

A positive number means more firms reported higher output than lower output. The smaller reading shows Texas factories were still moving forward, just with less speed than before.

Capacity use lost momentum

Capacity utilization also cooled sharply in the May survey. The index fell 15 points to 5.2, showing factories used equipment and space at a slower pace.

That does not mean the activity stopped. It means the jump seen earlier eased, and manufacturers were no longer stretching capacity as strongly as they had in April.

Shipments stayed positive

Shipments also moved lower in May, with the index falling eight points to 7.4. That still showed growth, but not the stronger movement seen earlier.

For factories, shipments matter because they show products leaving plants for customers. A slower reading can point to softer delivery activity, even when demand has not disappeared.

New orders cooled, too

New orders dipped four points to 6.4 in May, according to the Dallas Fed. The measure stayed positive, but the pace of incoming work slowed.

Orders are important because they can signal future factory activity. When growth cools there, manufacturers may watch schedules, inventory, and staffing plans more carefully in the coming weeks.

Business views barely changed

Broader business readings looked nearly flat in May. The general business activity index rose to 0.4, while the company outlook index came in at 0.3.

Both readings were close to zero, which signals little change from April. Texas manufacturers were not reporting a major shift in general conditions or outlook.

Raw material costs climbed

Factories also reported higher pressure from input costs. The raw materials prices index rose six points to 42.7, marking its highest level in eight months.

That kind of increase can squeeze manufacturers if selling prices do not rise as much. It also keeps attention on costs for parts, metals, supplies, and energy.

Finished goods prices eased

While raw material costs rose, finished goods prices moved the other way. The Dallas Fed said that the index fell nine points to 18.9 in May.

That means producers still reported some price increases, but at a slower pace. The gap between input and selling prices can make margins harder to manage.

Hiring remained mostly flat

The labor picture changed little in May. The employment index stayed at 0.2, which points to no real change in payrolls from the month before.

For workers, that means the survey did not show a broad hiring surge or deep pullback. Hours worked also moved lower, but remained slightly positive.

Workweeks held fairly steady

The hours worked index moved down from April but stayed above zero in May. That points to only mild growth in the amount of time worked.

This matters because hours can shift before payroll changes. When factories need less time from workers, managers may watch demand closely before adding staff.

Six-month hopes stayed brighter

Texas executives sounded more hopeful when looking ahead six months. The future production index stayed high at 36.8, showing expectations for stronger activity later, suggesting they view the recent cooling as temporary rather than a lasting downturn.

That forward view contrasts with the current slowdown. Manufacturers may see May as a cooler stretch, not necessarily a sign that demand will stay weak.

The survey gives a quick read

The Dallas Fed collected responses from May 12 through May 20. In all, 75 of 114 Texas manufacturers contacted submitted answers for the monthly report.

The survey asks whether key measures rose, fell, or stayed the same. Those answers help create indexes that offer a timely look at state factory conditions.

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Growth is slower, not gone

The main message from May is simple. Texas manufacturing growth has cooled from faster expansion to a more average pace, but output still increased, leaving factories on a slower yet still positive path.

That balance leaves manufacturers in a watchful position. Current activity slowed, costs rose, and hiring stayed flat, yet many executives still expect better conditions ahead.

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What do you think slower manufacturing growth could mean for Texas businesses and workers? Share your thoughts in the comments.

This slideshow was made with AI assistance and human editing.

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