Dallas Fed factory outlook survey shows strongest production activity on record

Texas manufacturing activity in March reached the highest level in the 17-year history of the Federal Reserve Bank of Dallas' monthly survey, results released March 29 show, but wholesale power prices so far have been weaker than in March 2020, when pandemic-induced lockdowns began.

The Dallas Fed's Texas Manufacturing Outlook Survey shows a seasonally adjusted production index of 48%, an increase of 28.1 percentage points from this February's 19.9% and a stark contrast with March 2020's negative 35.2%.

The survey's various indexes reflect the result when subtracting the percentage of respondents reporting a decrease from the percentage reporting an increase. For example, the most recent survey had 60.9% of respondents reporting an increase in production activity and 12.9% reporting a decrease. Data was collected from 111 Texas manufacturers March 16-24.

However, day-ahead on-peak locational marginal prices at the Electric Reliability Council of Texas North Hub, the market's most liquid location, have so far averaged about $24/MWh in March, down from March 2020's $28.29/MWh.

Power demand has also been lower, with daily peakloads averaging 40.7 GW through March 28, 2021, compared with 43.1 GW for all of March 2020.

February storm impacts

One factor contributing to weaker power demand may have been the level of damage to facilities brought on by the mid-February winter storm, its power outages and consequent water system breakage, according to special survey questions.

The special questions' results released March 29 also included responses from service and retail businesses, for which the Dallas Fed's general economic indicator survey results will be released March 30.

The survey indicated the following:

• 61.1% of respondents lost power during the storm for an average of 3.2 days
• 37.3% of respondents lost water for an average of 3.4 days
• 51.9% had a complete shutdown for an average of 4.6 days
• 31% had damage to facilities
• Of those with facility damage, 20% expected most of it to be covered by insurance, 45.5% expected some of it to be covered by insurance and 34.5% expected none of it to be covered by insurance
• 19% had damage to equipment
• Of those with equipment damage, 11.9% expected most of it to be covered by insurance, 49.3% expected some coverage and 38.8% expected no coverage
• 9.5% had damage to inventories
• Of those with inventory damage, 9.1% expected most to be covered by insurance, 30.3% expected some coverage and 60.6% expected no coverage

New orders, business outlook

Despite weaker power demand, the survey's new orders index rose to 30.5% from this February's 13% and March 2020's negative 41.5%.

The current business activity index, reflecting whether respondents perceived the general economy strengthening or weakening, was 28.9% in the most recent survey, up from this February's 17.2% and March 2020's negative 69.3%.

The future business activity index, reflecting opinions about the economy over the next six months, was 33.7% this March, essentially flat with this February's 33.9% and contrasting sharply from March 2020's negative 39.4%.

Improving novel coronavirus pandemic conditions may be contributing to growing manufacturing activity and an improved business outlook among survey respondents. The seven-day moving average of daily new COVID-19 cases was 3,320 on March 28, the lowest level since 3,032 on June 18, 2020. These numbers are from Worldometers.info, which collects data from federal, state and local public health agencies.

The seven-day moving average of daily deaths in Texas, as of March 28, was 107, the lowest level since 100 on Nov. 12, 2020.