The crash in oil prices is hammering the Texas economy.
The latest manufacturing outlook index from the Dallas Fed plunged again in March, to -17.4 from -11.2 in February, indicating deteriorating business conditions in the state.
Expectations were for the index to show a reading of -9.
But the most important part of this report is the commentary from Texas business leaders, who have given an on-the-ground picture of how the decline in oil prices is affecting one of the country’s economies most driven by oil. In March the tune didn’t change, as it sounds as if things are still tough in Texas.
One executive in the fabricated metal manufacturing sector said: “Our oil and gas customers have just stopped producing. This is not an unusual event for our oil and gas customers, but what feels different about this time is no one knows when production will restart. Typically, we have to ride out 60-90 days, and this one looks like six months or more.”
In the same sector, an executive said, “Much of our business is tied to oil. We are now entering what will probably (hopefully?) be the low point of the market. Our expected improvement for business six months from now reflects not a return to 2014, but a slow recovery from March-May 2015.”
From the machinery manufacturing sector, one executive was expecting the price of oil to fall below $US40 a barrel, causing “reduced sales of our capital equipment in the oil field.”
Out of the electrical equipment, appliance, and component manufacturing sector, one executive said: “The drop in oil prices has severely hurt our business since we sell a sizable amount of capital goods to that industry.”
And even away from direct impacts from oil prices, the commentary from Texas isn’t all that encouraging.
A paper manufacturing executive said “orders have been soft for 10 weeks now,” while a chemical manufacturing executive said that after a strong finish to 2014, orders for the first two quarters of this year had seen some “softening.”
This same executive said: “Some buying managers are worried about a predicted decrease in business volume, but we are not seeing it yet.”
Here’s the chart from the Dallas Fed showing the production index, which at -5.2 is showing its first negative reading in nearly two years.