Fiona Sigalla

Franklin D. Berger

Keith R. Phillips

Thomas B. Fomby

English

Research Papers in Economics

he Federal Reserve Bank of Dal-
las has introduced the Texas
Manufacturing Outlook Survey,
a new tool designed to provide
insights into current activity and expecta-
tions for growth in the state’s manufactur-
ing sector. 
The new monthly survey, which
launched its premier release November
28, is based on manufacturers’ responses
to questions about their Texas operations.
It asks about changes in production,
capacity utilization, orders, inventories,
prices, employees and capital expendi-
tures. Other questions solicit opinions
about general business activity. 
For all questions, participants are
asked whether the indicator has in-
creased, decreased or remained un-
changed. Answers cover changes over
the previous month and expectations for
activity six months into the future.
Roughly 80 manufacturers regularly par-
ticipate in the Dallas Fed survey, which
began collecting data in May 2004.
Anecdotal assessments like the man-
ufacturing survey do not measure output
or employment directly, but they are
nevertheless valuable tools.
1 Those oper-
ating on the front lines of business are
often the first to see changes in eco-
nomic conditions. By tapping into their
real-time collective judgments, including
observations about prospects for growth,
the surveys can provide timely readings
on the economy. 
The anecdotal surveys provide infor-
mation right away and are not subject to
large revisions. Generally, regional data are
available only with a substantial lag and are
often revised as much as a year later. 
Texas Manufacturing
The outlook survey focuses on manu-
facturing because movements in this sec-
tor can be particularly useful for under-
standing changes in the general economy.
Swings in business activity are often felt
more quickly and more intensely in the
manufacturing sector, which tends to be
more cyclically sensitive than the total
economy. 
Texas is important to the nation’s 
manufacturing. The state produced
roughly $98 billion worth of manufac-
tured goods in 2003, about 7 percent of
the country’s output. Texas ranks sec-
ond, behind California, in factory pro-
duction and first as an exporter of man-
ufactured products.
Texas’ share of the nation’s factory
output has been on the rise. A low cost
of living, fast-growing workforce and 
favorable business climate have attracted
factories to Texas from other parts of the
country. Although both Texas and the
United States lost a sizable number of
manufacturing jobs during the 2001
recession, Texas manufacturers added
workers in 2005 while U.S. factories con-
tinued to shed jobs. 
Chart 1 shows Texas manufacturing
output as a percent of the nation as a
whole. Not surprisingly, Texas turns out
a large share of the country’s petroleum
and coal products, reflecting the muscu-
lar refining industry. Texas also claims
nearly 10 percent of the nation’s output
in computer and electronics products
and nonmetallic mineral products, such
as brick, glass and cement.
Survey Execution and Results
Near the end of each month, the
questions for the new manufacturing
survey are electronically transmitted to
respondents. Answers are collected over
a few days.
2 Survey respondents are
instructed to exclude the effects of nor-
mal seasonal changes. After sufficient 
A New Barometer for the Texas Economy
T
Texas Manufacturing Output as a Share of U.S. Output
Percent
Chart 1
0
5
10
15
20
25
30
35
Plastics and rubber products 
Chemicals 
Petroleum and coal products 
Printing
Paper 
Apparel 
Textile and textile products
Food products 
Miscellaneous 
Furniture and related products 
Other transportation equipment 
Motor vehicle, body, trailer and parts 
Electrical equipment and appliances 
Computer and electronic products 
Machinery 
Fabricated metal products 
Primary metals 
Nonmetallic minerals 
Wood products 
Total
NOTE: Data are for 2003.
SOURCE: Bureau of Economic Analysis.
FEDERAL RESERVE BANK OF DALLAS   SOUTHWEST ECONOMY   NOVEMBER/DECEMBER 2005 14data are gathered, the survey will be sta-
tistically tested for the presence of sea-
sonality and corrections will be made as
necessary. 
Survey responses are used to calcu-
late an index for each question. Each
index is calculated by subtracting the
percentage reporting a decrease from
the percentage reporting an increase.
When all firms report that activity has
increased, an index will register 100. An
index will register –100 when all firms
report a decrease. An index will be zero
when the number of firms reporting an
increase or a decrease is equal.
To date, the manufacturing survey’s
index for general business activity has
been consistently positive (Chart 2). The
index for future activity has remained
mostly above the index for current activ-
ity, suggesting optimism among firms
that their business will improve over the
next six months.
The index for production has also
remained in positive territory (Chart 3).
Once again, the production index for
future activity continues to be stronger
than for current production, suggesting
that firms believe output will increase
over the next six months. The future
production index rose in August and
September 2005. 
The manufacturing employment
index has remained generally positive,
although it dipped slightly below zero in
October 2004 (Chart 4). This index has
been weaker than the other indexes.
This is consistent with the general
increase in productivity that has been
occurring in manufacturing for years,
with output increasing at a stronger rate
than employment. Echoing the produc-
tion index, the employment index for
future activity rose in August and Sep-
tember 2005, suggesting growing opti-
mism about future manufacturing activity
in the state.
Other FRB Indexes
The Texas Manufacturing Outlook
Survey is the fifth such survey published
by a Federal Reserve Bank. The Philadel-
phia Fed was the first to introduce a sur-
vey, starting in 1968. The Richmond,
Kansas City and New York Federal
Reserve Districts also publish manufac-
turing outlook surveys. These indexes
have become useful tools that provide 
General Business Activity
Index
Chart 2
–100
–80
–60
–40
–20
0
20
40
60
80
100
Nov.
’05
Oct.
’05
Sep.
’05
Aug.
’05
July
’05
June
’05
May
’05
April
’05
March
’05
Feb.
’05
Jan.
’05
Dec.
’04
Nov.
’04
Oct.
’04
Sep.
’04
Aug.
’04
July
’04
June
’04
May
’04
General business activity Future general business activity
Production
Index
Chart 3
–100
–80
–60
–40
–20
0
20
40
60
80
100
Nov.
’05
Oct.
’05
Sep.
’05
Aug.
’05
July
’05
June
’05
May
’05
April
’05
March
’05
Feb.
’05
Jan.
’05
Dec.
’04
Nov.
’04
Oct.
’04
Sep.
’04
Aug.
’04
July
’04
June
’04
May
’04
Production Future production
Employment
Index
Chart 4
–100
–80
–60
–40
–20
0
20
40
60
80
100
Nov.
’05
Oct.
’05
Sep.
’05
Aug.
’05
July
’05
June
’05
May
’05
April
’05
March
’05
Feb.
’05
Jan.
’05
Dec.
’04
Nov.
’04
Oct.
’04
Sep.
’04
Aug.
’04
July
’04
June
’04
May
’04
Number of employees Future number of employees
15 FEDERAL RESERVE BANK OF DALLAS   SOUTHWEST ECONOMY   NOVEMBER/DECEMBER 2005manufacturing output and personal
income, as well as other regional eco-
nomic variables of interest.
Survey results will be posted each
month on the Dallas Fed web site. An
electronic mailing list is available to
notify recipients each month when new
data are released. To subscribe, go to the
Dallas Fed web site at www.dallasfed.org
and click on “E-mail Alerts” under “Tools.”
—Fiona Sigalla
Franklin D. Berger
Thomas B. Fomby
Keith R. Phillips
Sigalla is an economist and Berger is director
of technical support and data analysis in the
Research Department of the Federal Reserve
Bank of Dallas. Fomby is an economics pro-
fessor at Southern Methodist University.
Phillips is a senior economist at the San Anto-
nio Branch of the Dallas Fed.
Notes
This index could not have been developed without the help of Mine
Yücel, Mario Hernandez, Donya Sonnier, Stephen Douglass and
Matthew Garibaldi. Also helping with production of the survey or this
article were Tonya Abna, Jennifer Afflerbach, Richard Alm, Laila
Assanie, Suzanne Babb, Anna Berman, Anne Coursey, Elizabeth
Delaire, Dianna Elzner, Connie Nevarez, Raghav Virmani and Andrea
Willis.
1 The Federal Reserve System regularly conducts an anecdotal Survey
of Current Economic Conditions prior to every Federal Open Market
Committee meeting. For more information about this survey and its
success in predicting economic conditions, see “How Well Does the
Beige Book Reflect Economic Activity? Evaluating Qualitative Informa-
tion Quantitatively,” by Nathan S. Balke and D’Ann Petersen, Journal of
Money, Credit and Banking, vol. 34, February 2002, pp. 114–36.
2 A copy of the survey form is available on the Dallas Fed web site,
www.dallasfed.org.
3 Other studies have reported positive results for the predictive power of
business outlook surveys and national economic indicators. For
example, see “The Predictive Abilities of the New York Fed’s Empire
State Manufacturing Survey,” by Richard Deitz and Charles Steindel,
Federal Reserve Bank of New York Current Issues in Economics and
Finance, Second District Highlights, vol. 11, January 2005.
4 Federal Reserve Bank of Kansas City Economic Review, Third Quarter
2004, pp. 39–69.
5 “Using Manufacturing Surveys to Assess Economic Conditions,” Fed-
eral Reserve Bank of Richmond Economic Quarterly, vol. 90/4, Fall
2004, pp. 65–92.
6 “Taking the Measure of Manufacturing,” Federal Reserve Bank of
Philadelphia Business Review, Fourth Quarter 2003, pp. 24–37.
and Michael Trebing report that the Busi-
ness Outlook Survey Index for the
Philadelphia Federal Reserve District is a
significant variable in explaining move-
ments in the district’s manufacturing
employment.
6
The Dallas Fed cannot yet make sim-
ilar claims for its Texas Manufacturing
Outlook Survey because there are not
sufficient data to seasonally adjust the
index or to test its relationship to
employment, output or other data. Other
Federal Reserve Bank indexes benefit
from seasonal adjustment, and the Dallas
Fed index will be seasonally adjusted as
soon as three years of data are available.
At the same time, the Dallas Fed will
continue to test the index against key
economic measures, with the intent of
honing its predictive power.
Survey Availability
The Texas Manufacturing Outlook
Survey adds another tool to an already
large set of indicators the Dallas Fed has
developed to track the Texas economy.
(See the box titled “Dallas Fed’s Regional
Economic Tool Kit.”) The Bank expects
this monthly survey to provide timely
indicators for future Texas employment, 
insights into the regional and national
economies—a factor in the Dallas Fed’s
decision to create its own. 
Three recent Federal Reserve Bank
studies have found positive results for
the ability of their respective Business
Outlook Surveys to predict regional eco-
nomic indicators.
3 In their article “What
Can Regional Manufacturing Surveys Tell
Us? Lessons from the Tenth District,”
William R. Keeton and Michael Verba
report that the Kansas City Federal
Reserve District’s employment indexes
provide substantial information about
current and future growth in district
manufacturing employment.
4 They also
suggest that their survey provides valu-
able information about production,
orders and capital spending for which
no independent regional data exist in
their district. 
Matthew Harris, Raymond E. Owens
and Pierre-Daniel G. Sarte report that the
Richmond Federal Reserve Bank employ-
ment index leads changes in manufac-
turing employment by one quarter and is
a timely gauge of movements in per-
sonal income in the Richmond Federal
Reserve District.
5
In a parallel result, Timothy Schiller 
FEDERAL RESERVE BANK OF DALLAS   SOUTHWEST ECONOMY   NOVEMBER/DECEMBER 2005 16
Dallas Fed’s Regional Economic Tool Kit
The Texas Manufacturing Outlook Survey is the newest of a host of regional economic indicators created 
and maintained by researchers at the Dallas Fed. Unique regional indicators include the following:
Notes
1 More information about this revision process can be found in the article “Getting a Jump on Texas Employment Revisions,” by Franklin D. Berger and
Fiona Sigalla, also in this issue.
2 This technique has been adopted by the Bureau of Labor Statistics for use with all state employment series. For more information about Dallas Fed
improvements to Texas employment series, see “Reassessing Texas Employment Growth,” by Franklin D. Berger and Keith R. Phillips, Federal Reserve Bank
of Dallas Southwest Economy, July/August 1993.
3 “The Texas Industrial Production Index,” by Franklin D. Berger and William T. Long, Federal Reserve Bank of Dallas Economic Review, November 1989,
pp. 21–38.
4 “The Texas Index of Leading Economic Indicators: A Revision and Further Evaluation,” by Keith R. Phillips, Federal Reserve Bank of Dallas Economic
Review, July 1990, pp. 17–25.
• The Texas Industrial Production Index, which has
been produced since 1958, measures the output
of the manufacturing, mining and utility sectors.
3
• The Texas coincident and leading business cycle
indexes, designed to measure and predict
changes in the state's business cycle, are available
along with their component series.
4 Coincident
business cycle indexes are also available for major
metropolitan areas in Texas. 
• The Survey of Eleventh District Agricultural Land
Values estimates the value per acre of dry, irri-
gated and ranchland reaching back to mid-1976.
• The Dallas Fed improves Texas state and metro-
politan employment data by including revisions
earlier than the Texas Workforce Commission
and Bureau of Labor Statistics.
1
• A sophisticated seasonal adjustment technique
developed by the Dallas Fed is applied to Texas
state and metropolitan employment.
2
• The Dallas Fed Beige Book summarizes anecdo-
tal information about recent economic condi-
tions and trends in the Eleventh District.

A new barometer for the Texas economy

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A new barometer for the Texas economy

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