DALLAS (PRESS RELEASE) — The following is a press release from the Federal Reserve Bank of Dallas:

Texas manufacturing output growth decelerated sharply in June, and demand declined for the first time in two years, according to business executives responding to the Texas Manufacturing Outlook Survey.

“Perceptions of general business conditions worsened for a second month in a row,” said Emily Kerr, Dallas Fed senior business economist. “A continued bright spot in the survey was the employment index, which fell but remained elevated, continuing to indicate robust hiring. Outlooks deteriorated and uncertainty shot up, with manufacturers voicing concern over inflation, continued supply-chain woes and an economic slowdown.”

Key takeaways from this month’s survey:

  • The production index fell from 18.8 to 2.3, reaching its lowest reading since May 2020.
  • The new orders index dipped into negative territory for the first time in two years, falling from 3.2 to -7.3.
  • Labor market measures continued to indicate robust employment growth and longer workweeks.
  • The general business activity index declined 10 points to -17.7.
  • The company outlook index fell 10 points to -20.2, reaching a low last seen in May 2020.

Expectations for Wage and Price Growth

The Dallas Fed asked a series of special questions on prices, wages and revenue restraints in its June Texas Business Outlook Surveys, and heard back from 366 business executives from June 14-22.

“Expectations for wage and price growth this year continue to rise,” Kerr said. “Texas firms now expect 7.4 percent wage growth in 2022, on average, and 9.7 percent input price growth. They expect to raise selling prices by 7.1 percent this year, on average. This month we asked for 2023 expectations for the first time, and firms expect price and wage growth to moderate a bit next year but remain quite elevated. When asked about factors restraining revenues, firms increasingly reported weak demand, though supply-chain disruptions and staffing shortages were still the top responses.”

Other key takeaways from the special questions:

  • Texas firms expect 6.0 percent wage growth in 2023, on average, and 7.1 percent input price growth. They expect to raise selling prices by 5.7 percent next year, on average.
  • Half of firms cite supply-chain disruptions as a primary factor restraining revenues, followed by limited operating capacity due to staffing shortages (40.8 percent). These figures are largely unchanged from March 2022 when we last asked this question. The share of firms reporting weak demand rose from 15.1 percent in March to 26.4 percent in June.

For more information about the survey, visit DallasFed.org.

(Press release from the Federal Reserve Bank of Dallas)