Business booms for manufacturing and services in Texas
About a week ago, Texas released its worst jobs report in months, losing 27,500 jobs in February.
But this contraction may soon become a distant memory, as the economy finally seems ready to take off.
In a March survey by the Federal Reserve Bank of Dallas, Texas manufacturing executives reported significant gains in production, new orders and shipments. On two key metrics – production and capacity utilization – the Dallas Fed’s index readings were the highest in the survey’s 17-year history.
The Texas service sector also reported stellar improvement in March. Income winners outnumbered losers by more than 2 to 1, a giant leap from February and well ahead of historical trends. Service companies also posted gains in terms of employment, hours worked and capital spending.
On two metrics, general business activity and company outlook, executives recorded the highest monthly scores since the Dallas Fed’s service sector survey began in 2007. Those with business activity improved were almost 5 to 1 more than declining.
“We are operating almost at full capacity,” an anonymous machinery manufacturing official told the Dallas Fed. “Business has never been better.”
An administrative and support services executive said, “Inactive clients have started to come together and reconnect to discuss future hiring plans. “
A manufacturer of computers and electronics said demand continued to strengthen globally, lead times were lengthened and many comparable companies were increasing their prices: “I haven’t seen this momentum for over 30 years in industry, ”the executive told Dallas Feeds.
The optimistic reports are not limited to Texas. Nationally, manufacturers grew in March at the fastest pace in 37 years, according to a closely watched index from the Institute for Supply Management. Other regional banks in the Fed’s system also reported strong improvement in manufacturing and services, said Emily Kerr, senior business economist at the Dallas Fed.
“There is just pervasive strength, both in measurable activities like production and in the company’s expectations and outlook,” Kerr said. “There are certainly many reasons to be optimistic about the way forward. “
COVID-19 vaccination rates are rising rapidly and some states, including Texas, have relaxed restrictions on businesses. Financial assistance continued to come from Washington, including personal checks for $ 1,400, UI supplements and loans for small businesses.
Consumers are also becoming more optimistic. The Conference Board’s survey of consumer confidence jumped more than 19 points in March to its highest level since the start of the pandemic.
Kerr is looking for a big change in the Dallas Fed’s business surveys since vaccine distribution began. But events have continued to intervene, from the increase in coronavirus cases in midwinter to the severe February storm that cut Texas’ power for days.
“Then the peak happened in March,” Kerr said. “It’s pretty shocking how much this outlook index has grown, especially among services. “
According to the survey, almost half of executives in the service sector say they expect business activity to improve over the next six months, beating those who expect a decline by 8 to 1. The index of future business activity hit a record high of 42.4, compared to a monthly average of around 13 over the past 14 years.
Strong increases are also expected in hiring and capital spending, “suggesting a sharp increase in service sector growth over the next six months,” the Dallas Fed wrote.
There are still many worries, starting with the high number of unemployed: nearly 10 million in the United States in February, including 970,500 in Texas. The Dallas Fed predicts that Texas will create more than 700,000 jobs this year, enough to recoup the jobs lost during the pandemic, and then some.
For that to happen, the heavy-duty machine in Texas will have to start up and stay there for the rest of the year.
Many executives already complain about the difficulty of finding new hires, and they often blame the federal relief programs.
“We are in desperate need of employees,” said an administrative services official at the Dallas Fed. “If the government pays people to stay at home, they will stay at home. “
That’s not what bothers Andy Ellard, part owner and general manager of Manda Machine Co. His Dallas-based company makes machine parts for aerospace companies and defense contractors, and he says he’s getting more and more more difficult to align raw materials such as steel and aluminum.
Prices are rising and inventories are falling, continuing the supply chain issues that have disrupted manufacturers throughout the pandemic.
He is also concerned about the cash flow compression due to the weeklong shutdown during the February storm. But Ellard won’t criticize government support, in part because the small business loan program and tax credits were key to retaining his 16 employees.
“Everyone stayed with us and we stayed with everyone,” Ellard said.
He said he participated in the Dallas Fed investigations for 12 years, and reported that growth resumed in March with more buy orders. This follows a 50% drop in activity last summer and a series of uneven months, including a difficult period from December to February.
He recently spoke with three different clients about creating new products, which will be exciting if the job comes along. While he is delighted to have these conversations, he has made it clear that business is not yet booming.
“We’re starting to see the light at the end of the tunnel,” Ellard said. “But I’m not ready to say it’s the best in 30 years, I promise you.”