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Texas Manufacturing Activity Swings to Expansion in June Despite Spike in Infections

Manufacturing activity in Texas edged up sharply in June despite a recent surge in Covid-19 infections, data from a report about the state’s industrial sector from the Federal Reserve Bank of Dallas showed Monday.

The production index stood at 13.6 in June compared with minus 28.0 in May, the latest Texas Manufacturing Outlook Survey showed. June’s reading marks an improvement of Texas factories’ activity for a second consecutive month, after posting an historic low in April amid the coronavirus pandemic.

The positive reading signals that output is expanding for the first time in three months, albeit a slow pace. In the survey, researchers at the Federal Reserve in Dallas ask Texas executives about a range of conditions in the industrial sector. They are asked whether certain parameters such as output, employment or orders increased, decreased or remained unchanged over the previous month.

The index for general business activity for June improved to minus 6.1 from minus 49.2 in the prior month, signalling that overall activity is still in contraction. Economists polled by FactSet had expected a worse reading of minus 25.

“Texas factory activity rebounded strongly in June,” the report said.

The new orders index improved to 2.9 from minus 30.6 in May, its first positive reading in four months, with nearly a third of manufacturers noting an increase in orders. The growth rate of orders was up to minus 5.8 from minus 30.8 the prior month.

Indicators measuring capacity utilization and shipments returned to positive territory, data showed.

The employment index stood at minus 1.5, an improvement from a minus 11.5 reading in May, with 17% of firms noting net layoffs and 15% noting net hiring. The hours worked index rose to minus 4.3, with the still negative reading signaling reduced workweek length.

Data for the survey was collected between June 16 and June 24, amid a rapid increase of coronavirus cases and hospitalizations across the state.

Despite the surge in infections, expectations regarding future business conditions were universally positive, the Federal Reserve Bank of Dallas said.

The future company outlook and future general business activity indexes returned to positive territory at 16.2 and 19.7, respectively. The index measuring uncertainty regarding companies’ outlooks retreated notably to 9.1, its lowest reading since January.

Respondents to the survey showed there is uncertainty about a possible second wave of infections, but that it did not affect their businesses.

“While we still are looking at many unknowns due to Covid-19, demand is up for us sharply. It has surprised us and our distribution customers and their homebuilder customers. Some customers are still projecting a downturn, but we don’t see it happening,” said one respondent from a building materials business.

“Although our business is very strong, there remains a significant amount of uncertainty, which we must navigate and manage as best as possible. Covid-19 remains a threat to our team,” said another company polled from the food manufacturing sector.
Source: Dow Jones

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