The fears about falling oil prices have been the focus of conversations around the country. While many states and cities are happy to see lower gasoline prices at the pump, many regions have grown worried that the ever lower oil prices may start to cause recessions in regions where oil is so dominant. The long and short of the matter is that low oil prices are not killing the manufacturing sector yet. There is some softness in the general business activity, as well as some slowing in the growth of future general business activity, but so far manufacturing seems to be holding strong.

The Dallas Federal Reserve released its Texas Manufacturing Outlook Survey for the month of December, showing that factory activity increased again in December. The Fed showed that the production index, a key measure of state manufacturing conditions, rose strongly from 6.0 to 15.8, indicating output grew at a faster pace in December.

Also, other index measurements of current manufacturing activity indicated continued growth during December. Perceptions of broader economic conditions remained positive this month, while labor market indicators reflected unchanged work weeks but continued employment increases. Upward pressures on prices eased, while wage pressure increased slightly, and expectations regarding future business conditions remained optimistic.

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Data were collected from December 15 to 23, and 107 Texas manufacturers responded to the survey. Additional results were listed as follows:

• The capacity utilization index rose from 9.8 to 12.4, due to a higher share of respondents noting an increase in December than in November.
• The shipments index climbed to 19.6, its highest reading in five months.
• The new orders index dropped from 5.6 to 1.3, suggesting moderating demand growth, but more than a quarter of firms noted increases in new orders over November levels.
• The general business activity index fell from 10.5 to 4.1.
• The company outlook index was almost unchanged at 8.4, with 21% of respondents noting an improved outlook.
• The December employment index held steady at a solid reading of 9.2, with 17% of firms reporting net hiring, compared with 7% reporting net layoffs.
• The hours worked index dropped from 5.7 to 0, indicating no change in hours worked in December.
• The raw materials prices index fell from 15.3 to 10.2, its lowest reading in eight months.
• The finished goods prices index declined as well to a 13-month low of 4.2.
• Looking ahead, 26% of respondents anticipate increases in raw materials prices over the next six months, while 24% expect higher finished goods prices.
• The wages and benefits index ticked up from 23.9 to 25.1, suggesting continued upward pressure on compensation costs.
• The index of future general business activity fell from 18.3 to 13.9.
• The index of future company outlook edged up to 24.1.
• Indexes for future manufacturing activity moved down in December but remained in solidly positive territory.

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Note that much of the serious drop in oil was seen in December and has yet to be factored into orders and activity in the months ahead. Some of that almost certainly will be dictated by the direction of oil. For now, it seems as though the local economy’s manufacturing activity is holding up rather well against the drop in oil prices.

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