Texas Manufacturing Remains Strong Despite Oil Going to $80

By Jon C. Ogg Published Oct 27, 11:25AM EDT

Follow 24/7 Wall St. on Google

This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.

Manufacturing activity in Texas is holding up better than many business watchers may have feared with lower and lower oil prices. The Dallas Fed Manufacturing Survey is rarely a market mover, but what this tells economists and investors alike is that manufacturers in the oil-rich region are not bowing down much at all to lower energy prices. There has been a fear of what $80 oil might bring — and oil was challenging the $80 mark on Monday.

The Dallas Federal Reserve released its Dallas Fed Manufacturing Survey for the month of October on Monday. The business activity index ticked only slightly lower to 10.5 in in October from 10.8 in September. While this is a drop, it is very small when you consider what has happened to the price of oil in the region.

Bloomberg was calling for the index to fall as low as 7.5. Still, the Production Index fell to 13.7 in October from 17.6 in September. This translates to slightly lower growth in production — but still solid growth. What needs to be considered here is that the price of oil has been lower and lower. In fact, oil has challenged the $80 mark again, and that is a level considered to be unprofitable or with profit margins too low to chase for many of the newer projects.

The Dallas Fed’s manufacturing monthly assessment was based on data collected from October 14 to October 22. That means the data is fresh and takes into consideration the most recent oil price trends challenging that $80 per barrel mark. The survey is based on data from 111 Texas manufacturers.

ALSO READ: States With the Widest Gap Between Rich and Poor

Other measures of current manufacturing activity also reflected continued growth in October. The new orders index rose to a six-month high at 14.2 from 7.5. The capacity utilization index moved down to 18.1 and the shipments index dropped to 12.8.

Broader business conditions remained optimistic this month and outlooks improved. The general business activity index held steady at a solid reading of 10.5. The company outlook index increased to its six-month high of 18.2.

The raw materials prices index was relatively unchanged from the previous month at 19.7. The finished goods prices index also held steady, at a reading of 7.1.

Labor market indicators reflected continued employment growth and longer work weeks. The October employment index held steady at 10.2. Firms reporting net hiring read at 19%, compared to 9% reporting net layoffs. The hours worked index was 8.3, after rising to 9.5 last month. Upward pressure on prices and wages continued at about the same pace in October. The wages and benefits index edged down to 24.5 from 26.2.

ALSO READ: Merrill Lynch Has 3 Oil Picks for Lower, Then Higher Oil Prices

As far as what to expect ahead, apparently Texas manufacturing companies do not seem worried about the future. The Dallas Fed said:

Expectations regarding future business conditions remained optimistic in October. The index of future general business activity inched up to 13.3. Indexes for future manufacturing activity showed mixed movements in October but remained in solidly positive territory. The index for future employment shot up 13 points to 31.7, suggesting an increase in headcounts six months from now.

It is always difficult to consider a drop as bad news. Still, oil has been listing lower and lower. West Texas crude was trading at $100 this summer, falling to $90 in September and ultimately testing the $80 per barrel mark multiple times in October.

About the Author Jon C. Ogg →

Jon Ogg has been a financial news analyst since 1997. Mr. Ogg set up one of the first audio squawk box services for traders called TTN, which he sold in 2003. He has previously worked as a licensed broker to some of the top U.S. and E.U. financial institutions, managed capital, and has raised private capital at the seed and venture stage. He has lived in Copenhagen, Denmark, as well as New York and Chicago, and he now lives in Houston, Texas. Jon received a Bachelor of Business Administration in finance at University of Houston in 1992. a673b.bigscoots-temp.com.