Texas manufacturing activity strengthened considerably in September, with the Dallas Fed’s production index jumping 13 points to 29.5—a level consistent with a robust expansion in factory output.
Why it matters: The report adds to a string of strong manufacturing data suggesting the economy continues to carry considerable momentum. For the bond market, that strength can be a double-edged sword: stronger growth reduces concerns about an economic slowdown but can also put upward pressure on Treasury yields and mortgage rates.
- The broader general business activity index slipped to 9.8 from 11.6 in August. Despite the decline, it remained firmly positive and was still the third-highest reading since May 2022.
Hiring accelerated, too: The employment index jumped seven points to 15.1 from 8.0, signaling faster job growth among Texas manufacturers. Hours worked, meanwhile, were little changed.
The bigger concern is inflation: Price and wage pressures increased across the board. The finished-goods price index rose five points to 27.6, while raw-material prices jumped eight points to 52.2—nearly double the series average of 28.0. The wages and benefits index climbed six points to 27.4.
- Manufacturers remain optimistic about production. The future production index held near 40 at 40.3, signaling expectations for continued strong output growth over the next six months. Broader business optimism cooled, however, with the future general business activity index falling to 20.8 from 37.2.
The bottom line: The Texas manufacturing sector isn’t showing many signs of slowing. Output and employment accelerated sharply while businesses expect production to remain strong. But with raw-material costs, selling prices and wages all rising, the report also reinforces inflation concerns—and strong growth combined with stronger price pressures is generally not what the bond market wants to see when looking for lower interest rates.