Texas Manufacturing Activity Slows More Than Expected

Texas manufacturing activity slowed more than expected in June, with the general business activity index falling to a three-year low at minus 12.1, down 5.8 points from May and much weaker than the consensus forecast. But as in May's survey, factory activity paradoxically continued to expand, with the production index rising 2.6 points to 8.9, indicating a slight acceleration in output on the month.

The survey's demand indicators were mixed: new orders bounced back 1.3 points to 3.7 after dropping to the lowest reading in nearly three years in May, but the new orders growth rate fell 7.8 points to minus 6.7; shipments fell 5.9 points 1.7, a two-year low, though unfilled orders bounced back from negative territory by 5 points to 3.4.

Most notable in the overall weakness was a drop of 11.8 points in capital expenditures to 6.9, a two year low.

Employment measures also slipped while remaining above average, with the employment index falling 2.8 points to 8.8 and hours worked down 1.7 points to 4.7.

On the inflation front, upward pressures increased by 9.0 points to 16.4 for input costs, while remaining muted at 1.2 for prices received. Wages and benefits fell 4.9 points to 22.7, close to the long-term average for this measure.

Future expectations once again remained positive though mostly much less optimistic than previously, with company outlook six months ahead worsening by 7.9 points to 3.6.