Texas Manufacturing Charges Forward: Is It Time to Get Bullish?
Things are looking up in Texas. Factory activity, as measured by the Federal Reserve Bank of Dallas, increased for the 11th consecutive moth in March, according to a survey of business executives. Every major manufacturing industry indicator showed growth in March, with many reporting acceleration.
The General Business Activity index, one of the broad measures of general business conditions in Texas, increased by 4.6 points to 4.9, making 10 consecutive months of improving optimism among business executives. Moreover, the company outlook index increased 5.7 points to 9.1, also making a 10-month streak. The current employment index increased 5.1 points to 15, but the future employment decreased 2.4 points to 35.1.
The data for Texas is consistent with a national-level pickup recently reported by the U.S. Census Bureau. New orders for manufactured durable goods increased 2.2 percent on the month and 0.2 percent on the year in February to $229.4 billion, beating estimates for a more modest increase of 1 percent. This increase follows two consecutive months of declines in December and January.
Excluding new orders for transportation equipment, which can be subject to seasonal and cyclical volatility, durable goods orders increased 0.2 percent on the month and 1.5 percent on the year. New orders for transportation equipment increased 6.9 percent sequentially to $71.4 billion, or about 31 percent of total spending. Excluding new orders for defense equipment, which are subject to the vagaries of politics, durable goods orders increased 1.8 percent. New orders for defense equipment increased 2.2 percent sequentially and is up 0.8 percent year to date compared to last year.
Regional manufacturing data from other Fed districts support the national trend. The Federal Reserve Bank of Kansas City reported earlier in March that its survey of Tenth District manufacturing activity showed growth and stable expectations for future growth.
“We saw acceleration in regional factory activity in March, to the fastest pace in over two years,” said Vice President Chad Wilkerson. “However, several respondents noted the stronger growth was in part making up for weather-related softness in previous months.”
These reports complement the Institute for Supply Management’s Manufacturing Report on Business. ISM maintains a purchasing manager’s index for the manufacturing industry, which increased 1.9 percentage points sequentially in February to 53.2, indicating accelerated growth. Supply executives did report that the cold weather was a headwind, but the new orders component of the headline index still increased. Production, however, declined from 54.8 to 48.2, contraction territory.
Markit’s Flash U.S. Manufacturing PMI for March rounds out the bullish manufacturing reports. The index fell from 57.1 in February to 55.5 in March, indicating positive growth but at a slower rate than before. The indexes for new orders, output, and employment followed suit, showing decelerated growth. The slowdown hasn’t concerned Markit chief economist Chris Williamson, however.
“The buoyant growth in March rounds off the best quarter for three years, indicating that the sector should provide a robust contribution to GDP in the first quarter,” Williamson said. “Growth was not as strong as February, but that’s in many respects only to be expected after last month’s numbers had been boosted by the rebound from January’s severe weather. The fact that the output and new orders indices remained so strong in March is very encouraging news that the sector has come through the weather-related soft patch and continues to play an increasingly important role in the economic upturn.”