Texas manufacturing, service sector activity grows in May: Dallas Fed survey

Economic activity in Texas continued to grow in both the manufacturing and service sectors in May, albeit at a slower pace than in April, new Federal Reserve Bank of Dallas surveys show, which contributed to significantly higher power prices, compared with May 2020.

The Dallas Fed's Texas Service Sector Survey, released June 2, shows a revenue index of 23.9% for this May, up from negative 27.2% during the pandemic-induced economic contraction under way in May 2020. This April, the revenue index was 26.1%.

The Dallas Fed's Texas Manufacturing Outlook Survey, released June 1, shows a production index of 15.7% for this May, up from negative 26.9% in May 2020 but down from this April's 34%.

Giuliano Bordignon, a power market analyst at S&P Global Platts Analytics, said the TMOS production index decrease in May, following a decline in April, "is significant."

"This is surprising given that COVID-19 cases continue to decline in the state, and now are back to where they were in June 2020," Bordignon said.

The Dallas Fed surveys' 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 40% of manufacturing survey respondents reporting an increase in revenue and 24.3% reporting a decrease, yielding an index of 15.7%.

Prices up on year

This May, day-ahead on-peak locational marginal prices at the Electric Reliability Council of Texas North Hub averaged about $27.65/MWh, up from May 2020's average of less than $21.60/MWh but down from this April's average of about $35.75/MWh.

However, daily peakloads averaged less than 50.7 GW this May, compared with 52.1 GW in May 2020 and 43.9 GW this April.

CustomWeather data shows cooling-degree days were about 29% less than normal this May, compared with 7% less than normal in May 2020 and 14.7% more than normal in April 2021.

Therefore, after adjusting for changes in weather, this May's peakloads appear to have been heavier than May 2020's and April 2021's.

This May's CDD average was at the lowest level over the past five years, but Bordignon attributed much of the year-on-year price increase to higher natural gas prices. Houston Ship Channel spot gas was up by more than 71% this May, compared with May 2020.

Business conditions, perceptions

"Perceptions of broader business conditions improved markedly in May, though uncertainty picked up," the Dallas Fed said of the report. "The general business activity index came in at 34.9, just a couple points down from its April reading and markedly higher than its series average of 2.6. The outlook uncertainty index moved up from zero to 14.7, indicating that uncertainty is back on the rise."

Service sector respondents also perceived improving business conditions, with the general business activity index reaching a new high of 40 "with nearly half of all respondents reporting an increase in business activity in May."

Data was collected May 18-26 from 290 Texas service sector executives and 103 manufacturers.