The Federal Reserve Bank of Dallas has released its Texas Manufacturing Outlook Survey for the month of February. Many Texans have hoped that Texas is not as reliant on the oil and gas sector as many might think. The reality is that February marked a second month of no growth in Texas factory activity, and the numbers seen so far simply may not reflect much of the weakness that could be coming in the quarters ahead if oil prices remain in the gutter.
Unlike many other economic reports, this information is very fresh. Data for this survey were collected from 108 Texas manufacturers during the period of February 10 to February 18. At the end of this report, we have included the direct comments that were directly tied to the energy sector.
The production index remained near zero, at 0.7, and indicated output was essentially unchanged from January levels. This is a key measure of state manufacturing conditions. What stands out in the report is the introductory comments on the rest of the index components: “Other measures of current manufacturing activity reflected contraction in February. … Perceptions of broader business conditions remained rather pessimistic this month.”
We saw negative readings in new orders, shipments and capacity utilization. These cautionary breakdown units were seen as follows:
- The new orders index pushed further into negative territory, coming in at -12.2, its lowest reading since June 2009.
- The shipments index fell to -3.3, also reaching a low not seen since 2009.
- The capacity utilization index turned negative as well, dropping from 5.1 to -4.9.
- The general business activity index moved further negative to -11.2, posting its lowest reading in nearly two years.
- The company outlook index remained slightly negative and edged down from -3.8 to -4.4.
It turns out that the jobs market has not yet been massively affected, but all readers need to consider is the layoff and capital expenditure cuts announced by big oil outfits in the past 45 days or so. The Dallas Fed said:
Labor market indicators reflected only minor employment growth and slightly shorter workweeks. The February employment index moved down from 9 to 1.3. Fifteen percent of firms reported net hiring, compared with 14 percent reporting net layoffs. The hours worked index edged further into negative territory, coming in at -1.6.
Those deflationary pressures are coming up as well. Prices fell slightly in February, and upward pressure on wages continued to ease:
- The raw materials prices index held steady at -1.7.
- The finished goods prices index was also slightly negative but edged up from -6.7 to -4.4.
- Manufacturers are no longer expecting sizable price increases six months ahead.
- The wages and benefits index edged down for a second month in a row and came in at 16.8.
Perhaps the only good news here is some hope for what lies ahead. Still, that has yet to be seen, and many business owners remain optimistic and hope that things will recover. The Dallas Fed said:
Expectations regarding future business conditions rebounded somewhat in February. The index of future general business activity shot up 12 points to 5.5 after posting a negative reading in January. The index of future company outlook rose nearly 10 points to 11.8, although it remains well below the index level seen throughout 2014. Indexes for future manufacturing activity showed mixed movements in February but remained in solidly positive territory.
There is one additional thing to consider here. The media keep showing how this “pay raise for America” has an overall net benefit. 24/7 Wall St. recently warned that $50 oil could cost a million jobs. What readers should also consider is what the data from Texas workforce readings indicated back in December and in January: one oil-related job is worth three times other jobs in total economic impact.
Below are some of the energy-related, verbatim comments from various sectors:
- Primary Metal Manufacturing — There has been a rapid decline in orders over the past 30 days, primarily in energy-related work. Overall, business has declined by 30 percent in the past month, and our forecasts, based on customer feedback and order volumes, indicate further decline in overall business. Materials prices continue to decline as well, and a further decline is expected for most of the raw materials used in our processes.
- Fabricated Metal Manufacturing — Our work is generally energy related, and the decrease in capital budgets for 2015 and 2016 will have a short- and long-term effect on our production and profitability. We are not adding to our backlog from the fourth quarter.
- Fabricated Metal Manufacturing — We are starting to feel a slowdown with our oil and gas production equipment customers. We anticipate the slowdown has just started and it will not hit both until another six months because the current backlog is hiding the immediate slowdown that had already started three months ago in well drilling.
- Fabricated Metal Manufacturing — We are very much affected by the crash in oil prices.
- Fabricated Metal Manufacturing — At the beginning of the month there was a wave of projects that were either cancelled or placed on hold by the customer.
- Machinery Manufacturing — Oil at $50 per barrel is painful. We laid off 25 percent of our workforce to match labor with demand. The current thinking is if we can get through the first half of 2015 unscathed, we will be okay in the second half. We’re optimistic that things will be better in the second half of the year in the offshore energy market.
- Machinery Manufacturing — The oil price is driving down drilling activity in North America, and our business is strongly correlated to the number of active drilling rigs. We have a tough couple of quarters ahead.