Federal Reserve Bank of Dallas News: Texas Businesses Comment on Impact of Tariffs in Dallas Fed Survey

Manufacturing activity continues to expand in September amid rising uncertainty

DALLAS, TX—Many Texas businesses are feeling the impact of tariffs, according to the Federal Reserve Bank of Dallas’ latest Texas Business Outlook Surveys.

In September, business executives from both manufacturing and service sector firms were asked a series of special questions about the effects of tariffs.

“Many more Texas firms said that the tariff impact is negative than positive: 35 percent of respondents said the net impact on their firm of the tariffs announced and/or implemented by the U.S. and other countries this year is negative, while 5 percent said the impact is positive,” said Emily Kerr, Dallas Fed senior business economist.  “The impact on manufacturers is a bit more polarized, according to the survey, with nearly half noting a negative impact and nearly 10 percent noting a positive one.”

Breaking down the tariff impact on various aspects of business, firms noted that input costs and uncertainty were most affected.  Of all responding firms, 44 percent said tariffs increased their input costs (the share was much higher for manufacturers and retailers than for service firms) and more than half said tariffs increased uncertainty.

Also released today, the Texas Manufacturing Outlook Survey showed factory activity continued to expand in September but at a slower pace than in August and uncertainty increased.  The production index—a key measure of state manufacturing conditions—fell six points to 23.3.  The relatively new index measuring uncertainty regarding companies’ outlooks moved up four points to a new high of 19.9.

“This was another strong report for Texas manufacturing, although there are some signs that the expansion is moderating somewhat,” Kerr said.  “While output growth has remained very strong for over a year (with the production index oscillating around a reading of 25), demand growth has slowed in the third quarter as the new orders index slipped from 30 in June to 15 in September.”

Here are some additional key takeaways from this month’s manufacturing report:

Manufacturers’ outlooks remain positive overall but optimism waned.  The general business activity index edged down but remained highly elevated at 28.1.  The company outlook index held above average but retreated nine points to 18.2.

Employment rose at a slower pace.  The employment index remained positive but fell 11 points to 17.7.  The hours worked index moved down to 12.7.

Price and wage pressures remained highly elevated.  The raw materials prices index held fairly steady at 44.4, while the finished goods prices index edged down to 13.6.  Compensation costs continued to rise at a faster clip than normal, with the wages and benefits index holding at 33.0.

Positive readings in the survey generally indicate expansion of factory activity, while readings below zero generally indicate contraction.

Texas produces more than 11 percent of total manufactured goods in the United States, ranking second behind California in factory production.

The Dallas Fed conducts the Texas Manufacturing Outlook Survey monthly to obtain a timely assessment of the state’s factory activity.

SOURCE: news provided by DALLASFED.ORG