Texas manufacturing activity stalled in April as new orders and shipments dropped sharply from March’s growth rates, according to a monthly report from the Federal Reserve Bank of Dallas.
The state production index, a key measure of manufacturing output, dropped to a reading of -0.5 in April from 9.9 the prior month, the bank’s Texas Manufacturing Outlook Survey said. The near-zero reading suggested that production was little changed from March, the bank said.
The production index tends to track closely with the broader Texas economy. As such, it provides one of the most current glimpses of economic trends in the state.
The lack of growth in April reflected a deteriorating rate of new orders and shipments during the month. Both indexes swung to negative readings, indicating contraction.
The measure of new orders dropped to -4.9 from 8.1 in March, the report said, and shipments were essentially flat after moderate growth in March.
Fewer orders and lower production forced many Texas manufacturers to cut back on the hours worked, which contracted for a third consecutive month. However, the state’s producers continued to hire, with the employment index rising in April and recording a fourth consecutive month of expansion.
Still, the pullback in April left Texas manufacturers with a decidedly pessimistic outlook on both company-specific and general business conditions. The indexes for general business activity both now and six months out plummeted to negative territory.
Producers took a pessimistic view of their own prospects in the near term. And while they retained an optimistic view of their own future business, they were decidedly less positive, the report said.
In anecdotal comments compiled by the Dallas Fed, manufacturers suggested that solid demand during the first three months of 2013 had started to soften.
“There are new concerns that the broader recovery has no follow-through, and the potential for a slowdown is more possible now than 30 days ago,” said one respondent from the computer and electronics manufacturing industry.
Several manufacturers noted uncertainties about federal regulations, including health care costs. In a special set of questions added to the survey in April, more than 80 percent of manufacturers said they expect to see increased labor costs related to provisions of the federal Affordable Care Act.
Almost 38 percent said they would either pass the costs on to employees or reduce wages and benefits to compensate for the increases. A similar percentage said they would likely reduce the number of full-time, part-time or temporary employees, the report said.