Manufacturing Growth in Texas

The Austin Chamber of Commerce posted an interesting report today based on the Texas Manufacturing Outlook Survey:

Central Texas Economy in Perspective

The outlook is optimistic.  I want to comment on just a couple of charts from the Chamber’s article, and one from the source report.

Suffice to say that current data regarding production and shipments is encouraging.  My focus here is on the future.

Note that a little more than 50% of the companies surveyed report expectations for increasing future production, compared with less than 5% expecting declines.  That translates into an “index” of about 46%, which you will see in the Production index in the chart below.  Almost half of companies expect the volume of new orders to increase, and more than one-third expect the growth rate of new orders to increase as well.

The climb from last August in all of those indices is obvious, as is the dip from January to February.  Even there, though, notice that almost 30% more companies are optimistic about General Business Activity than those that are not.  Maybe more important is that the Employment index did not dip along with the other indices, with 40% more companies expecting to increase employment than those that expect decreases.

For a slightly longer-term perspective, this chart goes back to the pre-recession period:

A key difference between that chart and those above is that the longer-term view has been seasonally adjusted.  The notable feature to me is that production over the past few months has been back up to mid-2006 levels, and the expectation for future production is at or near pre-recession levels.

This data does not tell an unambiguously positive story:  Note that almost 70% surveyed companies expect to pay higher prices for raw materials and 45% more expect to increase payrolls, while companies that expect to charge higher prices for finished goods outnumber those that don’t by only about 35%.  These changes, if they turn out to be true, will result in reduced profit margins over the forecast period.  Presumably, a majority of companies are betting that the growth of new orders and new shipments will allow them to restore margins over time, justifying the thinner profit margins in the short run.