Things Are Bad In Texas

The oil crash is weighing on Texas’ economy.

The January Texas manufacturing survey from the Dallas Fed was a huge miss, with the general business activity reading coming in at -4.4.

Expectations were for the composite index to come in at 3.0, down from 4.1 in December. Factory activity in the region was flat in January.

The big takeaway, however, is that like last month, a number of business executives expressed concerns over how the crash in crude oil prices will impact results.

One executive in the fabric ted metal manufacturing sector said that, “multiple oil-related customers have sent out letters to all suppliers saying they expect 25 per cent price reductions.”

Another executive in this same sector said, “The tremendous drop in oil price is just starting to trickle its way through our customer base. We deal with the majors, and they have not signaled significant reductions in maintenance spending yet. If low oil prices continue, we would expect a significant drop-off in our business.”

A machinery manufacturing executive said, “Oil below $US50 is tough. We’ll have to see how long it takes to stabilise.” Though another executive in the same sector said, “We have yet to see any effect of lower oil prices in our sales backlog. Activity and interest remain strong in spite of headlines to the contrary.”

A food manufacturing executive said the decline in oil prices has positively impacted their businesses input costs, and added that a strong US dollar has been a positive impact.

The future around the price of oil, and in turn much of the Texas economy’s recovery, remains uncertain. As one wood product manufacturing executive said:

“Like everyone, we are concerned about oil prices and are uncertain about the effect on construction in Texas. Will a good recovery slow or, worse yet, end? We don’t know.”

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