Texas manufacturing survey shows fourth month of growth, boosting power loads

Texas manufacturing activity expanded in September, a Federal Reserve Bank of Dallas survey released Sept. 28 shows, the fourth consecutive month of growth since the novel coronavirus pandemic's spring economic contraction, which may indicate strengthening power demand, but not necessarily higher prices.

Conducted each month by the Federal Reserve Bank of Dallas, the Texas Manufacturing Outlook Survey seeks responses from business decision makers regarding current and future market conditions. The indexes that result from these questions represent the difference in percentages between those perceiving improved conditions and those perceive worse conditions. If the percentage seeing improved conditions exceeds the percentage seeing worse conditions, the index is positive, and vice versa.

A key statistic in the report is the production index, which represents each respondent's report on whether their own facilities increased production beyond normal seasonal conditions in the current month. The latest survey shows a seasonally adjusted production index of 22.3, meaning that the percent of respondents reporting increased production activity exceeded the percent reporting reduced activity by 22.3 percentage points.

In the August TMOS, the seasonally adjusted production index was 13.1. In September 2019, the number was 13.9.

"This actually fits right in line with what we've been seeing in our weather-adjusted load models and our COVID impact model," said Travis Whalen, a power market analyst at S&P Global Platts Analytics. "Both have shown a reversion to prior trends, with perhaps slightly more modest load growth than at the start of the year. Considering that some significant portion of manufacturing in Texas is tied to oil and gas, the recovery of drilling activity alone should suggest a recovery in manufacturing, but obviously the loosening of state restriction would also encourage other activity."

Platts Analytics' estimate of weather-adjusted on-peak load averaged 57.3 GW this August, the latest month for which complete data is available, up about 2.3% from July's average below 56 GW and up 1.6% from August 2019's 57.3 GW.

It should be noted that September peakloads through Sept. 27, without adjusting for weather conditions, have averaged 56 GW, down 8.8 GW or 13.6% from September 2019's average of 64.8 GW.

Price spikes unlikely

The survey also included other evidence of above-average manufacturing growth in September.

"The new orders index advanced five points to 14.7, and the growth rate of orders index held fairly steady at 13.2," the TMOS report states. "The capacity utilization index rose from 10.9 to 17.5, while the shipments index was largely unchanged at 21.5."

Also, the general business activity index rose points to 13.6, its highest reading since November 2018, the report states.

"The company outlook index held mostly steady at 14.9, a reading well above average," the report states. "Uncertainty regarding companies' outlooks continued to rise, with the index positive but largely unchanged at 6.7."

Platts Analytics' Whalen said the TMOS results "fits fairly well into our existing forecast for load," so his organization is unlikely to change its outlook.

"However, without significant load growth going into next summer you're unlikely to see appreciable price spikes given the amount of capacity still slated to come online by then," Whalen said. "There have been a few delays, but there is also still significant capacity build out on the presumption of continued load growth at recent rates."