HispanicBusiness

Texas manufacturing production continued to expand in July, but heightened economic and political uncertainty slowed that growth and put a damper on expectations for future business activity.

The state's production index dropped to 12.0 in July from 15.5 in June, according to the Texas Manufacturing Outlook Survey, a monthly poll of Texas manufacturers conducted by the Federal Reserve Bank of Dallas.

This key measure of Texas manufacturing conditions tends to closely track the broader state economy, so it provides an early glimpse of economic activity each month.

Though it remained in positive territory in July, the production index and other supporting data suggested that optimism had dwindled among manufacturers.

The stuttering economic recovery and the lack of political progress ahead of the November elections stifled optimism for general business activity. And those concerns about broader business conditions started to chip more deeply into confidence about company-specific prospects as well, the survey showed.

The index of broader, general business activity during July dropped sharply to -13.2, entering negative territory from 5.8 in June and posting the lowest reading in 10 months. The outlook for general business activity six months out fell to -7.3 from 1.3 in June, the most pessimistic outlook since April 2009 and just the second negative reading since then, according to the survey.

The growing concerns about the broader business environment seeped further into manufacturers' views of their own prospects. The company-specific outlook for July dropped to 1.6, still positive but down from 5.8 in June. The company-specific measure for six months ahead fell to 5.3 from 8.4 in June. That was the lowest reading for that index since May 2009.

In comments published in the Dallas Fed's report, several manufacturers described conditions as better than last year. However, their optimism was tempered by political and economic concerns.

"Money is not the problem," one fabricated metal manufacturer noted. "A total lack of confidence is the problem."

The silver lining on the manufacturing cloud -- at least for the workforce -- came in the form of strong employment measures. Employment continued to expand in July, albeit at a slightly slower rate, while hours worked and wages and benefits also increased, according to the survey.

Though the increases will probably put some wage pressure on companies, manufacturers expected the strong employment trends to continue six months out, the report showed.

New orders, which slowed but continued to grow in July, were expected to keep expanding. And prices received for finished goods, which dropped in July, were expected to increase in the future.