Texas Manufacturing Grows Modestly Despite Outlook Slump: Dallas Fed

Production stayed in growth territory last month even as orders shrank, costs rose, and confidence sank to a five-year low.

Employees work on a chassis at a factory in Riverside, Calif., on Sept. 23, 2005. David McNew/Getty Images

Manufacturing activity in Texas continued to grow in April, though modestly, even as business sentiment deteriorated to a five-year low, the Federal Reserve Bank of Dallas reported on April 28.

The Dallas Fed’s production index—a key gauge of factory output—registered 5.1, remaining in positive territory for a third consecutive month and signaling slight but steady growth. However, the general business activity index plunged to minus 35.8, the weakest reading since May 2020, reflecting deepening anxiety among manufacturers over tariffs and broader economic uncertainty.

“It is a very dynamic time,” a chemical manufacturer wrote in a survey comment. “I agree with the approach and need to bring manufacturing back to the [United States] so that we have the internal capability for national security interests.

“The ability to forecast and to understand consumer confidence drivers to the basic materials, construction, automotive markets, etc., are the most difficult we have seen since the COVID era.”

The mixed report suggests that while the Texas industrial sector remains resilient, it is increasingly grappling with volatile demand, rising input costs, and supply chain challenges.

The April findings come as U.S. manufacturing more broadly shows signs of stabilizing. A report released last week by S&P Global showed the Flash U.S. Manufacturing PMI rising to 50.7 in April from 50.2 in March, remaining just above the neutral 50 threshold that separates growth from contraction.

Factory output nationally also returned to expansion, according to S&P Global, with companies citing stronger domestic demand even as export orders continued to weaken under the pressure of ongoing trade tensions.

The Dallas Fed survey mirrored these national trends. While production in Texas grew, orders contracted sharply. The new orders index fell by 20 points to minus 20.0, signaling declining demand, and capacity utilization dipped into negative territory at minus 3.8. Shipments also slowed, and employment weakened slightly, with more firms reporting layoffs than hirings.

Survey respondents cited widespread uncertainty surrounding tariffs as a major drag on business planning.

“Most of our U.S. customers continue to buy, but we have seen a 25 percent drop in incoming RFQs [requests for quotations] in April compared with the average of previous months,” a computer and electronics manufacturer wrote.

“Assuming this continues, we expect to see roughly a 10–15 percent decline in sales in May. We believe that this is largely due to uncertainty in our customer base driven by the tariff situation and potential knock-on effects to the general economy.”

A respondent from the fabricated metals sector noted: “There is no stability in business, so it is difficult to plan. Thus, we are not making commitments for future growth, not knowing if or when future growth will exist.”

Despite these headwinds, some manufacturers remain cautiously optimistic. The Federal Reserve’s latest Beige Book, which surveys economic conditions across the country, noted that factory activity in several districts—including Dallas—showed modest improvements in April, with firms adding staff to meet growing demand.

Still, business sentiment in Texas appears to be eroding. The Dallas Fed’s company outlook index sank to minus 28.3, and the outlook uncertainty index jumped to 47.1 from 36.2 in March, as companies weighed rising input costs, tighter labor markets, and increasingly uncertain financial conditions.

Similarly, S&P Global reported that national manufacturers’ expectations for future output had fallen to their lowest level since August 2024.

Adding to the pressure, inflation remains a key concern, although the inflation rate fell to 2.8 percent in March. According to S&P Global, manufacturers in April raised prices at the fastest pace in more than two years, driven by tariff-related input cost increases and higher wages—a trend that economists warn could complicate Federal Reserve efforts to cut interest rates later this year.

President Donald Trump and members of his administration have described the sweeping tariffs as part of a strategy to revive the United States’ long-declining industrial base.

Acknowledging near-term disruptions, Trump has urged businesses and consumers to be patient, promising that reshoring and tariff policies will ultimately strengthen U.S. manufacturing and usher in the “Golden Age of America.”