03:59 PM EST, 02/24/2025 (MT Newswires) -- Texas manufacturing activity fell more sharply than expected and into contraction territory this month as executives cited rising uncertainty around tariffs.

The general business activity index slid to a reading of minus 8.3 in February from 14.1 in January, the Dallas Fed's manufacturing outlook survey showed Monday. Analysts surveyed in a Bloomberg poll were expecting a smaller decline to 6.4.

Production, which the Fed branch calls a key measure of state manufacturing conditions, declined to minus 9.1 this month from 12.2 the one prior. New orders swung negative, while the shipments index dipped to 5.6 from 8.7.

"A pullback was seen in Texas factory activity in February, with manufacturing executives noting mounting uncertainty, primarily regarding tariff policy," said Emily Kerr, senior business economist at the Dallas Fed.

The uncertainty index reached a seven-month high.

"Tariffs are driving the economic conversation right now, as investors grapple with the evolving US policy framework," Morgan Stanley said in a note emailed Monday. "Though the focus may be on negotiations, we believe the out-turn of tariffs will be supply chain strain."

The index charting employment edged down about 3 points to minus 0.7 in data suggesting "flat head counts and shorter workweeks," the Fed branch said. About 12% of firms in the survey noted net hiring, equal to those that reported layoffs.

"Input cost pressures intensified in February, while wage pressures retreated slightly," the Dallas Fed said. The raw materials price index climbed nearly 18 points to 35, a multi-year high. The index for selling prices inched up 1.6 points to 7.8.

Six months out, expectations for general business activity tumbled roughly 28 points to 7.7, while the future production index declined to 28.3 from 44.8, according to the Fed branch's report. "Outlooks worsened slightly, though expectations are still for increased manufacturing activity six months from now," Kerr said.

The forward-looking indicator for new orders slid more than 20 points from January to 25.8, while the shipments gauge decreased nearly 16 points. The future employment index fell about 11 points to 16.5.