Texas manufacturing output reaches three-year high amid positive outlook

In July 2025, Texas experienced a significant rebound in manufacturing activity, with production indicators reaching their highest levels in three years. This resurgence, reported by the Federal Reserve Bank of Dallas, reflected improvements in several key areas of the manufacturing sector. The production index, a vital measure of factory conditions, surged 20 points to 21.3, marking its strongest reading since mid-2021. Economists had predicted a weaker outcome, with expectations for a general business activity index of -9.0. Instead, the index showed a substantial recovery, rising 14 points to -0.9, indicating a stabilization in manufacturing following five consecutive months of decline. Notably, as Texas manufacturing began to stabilize, several other metrics also showed encouraging signs. New orders, while still negative, improved from -7.3 to -3.6. Capacity utilization along with shipments transitioned into positive territories, registering at 17.3 and 2.7 respectively. Increased business sentiment was evidenced by a jump in the company outlook index, rising 14 points to a positive 4.7—this was the first time it registered a positive reading in six months. Moreover, the outlook uncertainty index decreased from 15.3 to 11.2, indicating a slight improvement in firms' confidence regarding future market conditions. Labor market indicators also showed positive movement. The employment index increased to 8.4, with 17 percent of manufacturers reporting net hiring within their workforce and only 9 percent experiencing net layoffs. In addition, the hours worked index rose significantly to 7.7, the highest level recorded since 2021. Despite these positive trends, input cost pressures continued to be a concern. The raw materials price index remained high at 41.7, considerably above the average for this series. However, there was a sign of relief as the finished goods price index eased to 11.1, implying that businesses were not transferring the increased costs onto consumers. Wage growth did not change, maintaining a wages and benefits index at 13.2. Looking ahead, future production index measures improved broadly, with the future production index rising by eight points to 30.3 and the future general business activity index climbing to 19.0. While most other forward-looking indicators advanced, it should be noted that some still lag behind long-term historical norms, suggesting caution for long-term expectations.