Factories in Texas Increasingly Affected by Inflation

By Ashok Ramprasad | December 2, 2021
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Texas factories to experience even more inflation ahead.
Texas factories to experience even more inflation ahead. (Image: RyderR via Pixabay)

Texas is popularly known as one of the manufacturing centers of the country. It is home to various industries from motor vehicle and parts manufacturing to computer and electronic products, as well as food and beverage production. Texas factories have become one of the most affected by the so-called “Bidenflation.”

As per data released by the Federal Reserve Bank of Dallas on Nov. 29, expectations regarding the cost of raw materials and inflation among Texas manufacturers rose in November. The measure of prices for raw material in the Texas Manufacturing Outlook Survey moved up to 82.1 which is a new series high. The survey is a key gauge of factors related to state manufacturing.

Around 83.6 percent of manufacturers reported that prices of raw materials were higher than compared to the previous month. Only 1.5 percent reported prices decreasing; 14.9 percent said that there was no change.

The finished goods prices index plunged from its high last month, dropping eight points to 42.2. However, this is still considerably higher than its historical average of 7.6. Moving up from 44.1 to 47.6, the wages and benefits index arrived close to its own series high.

With 62.1 percent of manufacturers foreseeing elevated prices, the six-month expectations index for raw materials costs scaled up to 56.4. The finished goods price expectations index climbed to 49.5, an 8.9 point increase; 55.2 percent of producers are planning to hike up their prices. 

“Higher-than-historical raw materials costs, continued supply-chain shortages, and the continued war on talent with limited labor availability have impacted near-term to 12-month business forecasts negatively,” a survey participant from a chemicals manufacturing sector said.

“Democrats are in control, so our buying power is declining. Spend, spend, spend, spend, spend is all they know, and what they spend it on hurts the working-class American… I hope we can survive,” a Texas executive in machinery manufacturing stated.

Another producer noted that the pandemic had knocked off competition, led to an increase in prices, and restricted production. One entrepreneur who tried to contend with his company simply went insolvent. Amidst government regulations, oil companies calling for more insurance, and inflated prices, the obstacles for competitors are so high that his company became the sole supplier with stock and the capability to address the needs of customers. As a result, the company hiked prices and sped up response times to service its customers’ demands.

The vaccine mandate is another factor that is adversely impacting the competence to hire according to a manufacturer. He added that the job outlook is bleak because there are many workers who are not inclined to or are not able to get vaccinated. 

Furthermore, they do not want to undergo a weekly test by driving 30 minutes out of town. Manufacturers are already facing a challenge when it comes to finding individuals who want to work. The mandate makes it even more difficult.

In spite of the supply chain bottlenecks, growth in Texas factory output rose faster in November. The production index rose to 27.4 from 18.3 in October, a number that indicates robust growth. 

There was notable growth in other measures of manufacturing activity too. The new orders index was up 5 points from October at 19.6 while the growth rate of the orders index edged up three points to 16.8. Shooting 11 points to 24.3, the shipments index posted its highest numbers since July and the capacity utilization index moved up to 26.4 from 20.1, Dallas Fed data showed.

The general business activity index, which evaluates wider business conditions in the manufacturing category, fell to 11.8 from 14.6 in October. Lastly, expectations regarding future manufacturing activity were positive overall in November.