The Federal Reserve Bank of Dallas has released its Manufacturing Outlook report for the month of March. It was widely expected that regional manufacturing would be at least at risk from the oil and gas sector woes. Now we know to what extent. What economists and Texans will notice here is that this is the first negative reading on Texas manufacturing in nearly two years.

The Manufacturing Production Index fell into the red at -5.2, versus 0.7 in February. A drop of this magnitude is not just a small downtick. The Business Activity Index fell further into the red in March, dropping to -17.4 from -11.2 the prior month. A quote from the Dallas Federal Reserve Bank said:

The new orders index pushed further into negative territory, coming in at -16.1, and the growth rate of orders index remained negative for a fifth consecutive month but edged up to -15.3 in March. The shipments and capacity utilization indexes slipped to more negative readings, -8.7 and -6.4, respectively.

Perceptions of broader business conditions were rather pessimistic for a third month in a row. The general business activity index declined 6 points to -17.4 in March, while the company outlook index was largely unchanged at -4.

Labor market indicators reflected slight employment declines and shorter workweeks. The March employment index dipped to -1.8, its first negative reading since May 2013. Thirteen percent of firms reported net hiring, compared with 14 percent reporting net layoffs.

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Monday’s report may look and sound different from the Texas Workforce Commission (TWC) report last Friday. The TWC showed that the Texas unemployment rate fell to 4.3% in February and that a net 7,100 positions had been added. The TWC report did have one ominous tone to it though: it failed to mention oil and gas even once in the official release. The TWC said:

Fueled by an impressive expansion in the Trade, Transportation and Utilities industry, Texas saw continued seasonally adjusted job growth in February. The Trade, Transportation and Utilities industry saw its largest monthly increase in more than 20 years with the addition of 16,300 jobs. The state experienced a net gain of 7,100 nonagricultural jobs in February with 357,300 positions added over the year.

Also, consider that the unemployment report was for February, compared to March for the manufacturing report. The Fed’s comments were far less positive than those of the TWC. The mining and logging sector lost 3,500 jobs from January to February — to 311,800 from 315,300.

Oil falling from $100 to less than $50 in a few short months has started to create fallout. If there is no rapid recovery in oil prices, a recovery that is not widely expected, then the economic readings in Texas may only be at the start of their more negative readings.

Stay tuned.

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