Energy

More Evidence That Low Oil Is Hurting Texas Businesses

Cheap oil acts as a pay raise for many consumers in the nation. It also acts as a serious drag on the local, state and regional economies where the oil and gas industry has such a dominant role.

What the Dallas Federal Reserve’s latest Texas Manufacturing Outlook Survey report signals is that Texas manufacturing activity stalled in January, and also that the outlook has become worse. The survey showed that the production index came in at 0.7, indicating output was essentially unchanged from December. Positive readings in the survey generally indicate expansion, and readings below zero generally indicate contraction.

As for the expectations and the outlook ahead, perceptions of broader economic conditions fell in January as the general business activity index dropped to –4.4. The company outlook index turned negative as well.

Texas was still said to produce more than 11% of all U.S. manufactured goods, behind only California in ranking of total factory production. Still, the capacity utilization index was at a five-month low of 5.1, and the new orders index registered its first negative reading since April 2013.

  • The shipments index plunged but remained positive.
  • The company outlook index fell 13 points, coming in at -3.8.
  • The index of future general business activity plummeted from 13.0 to -6.4.
  • The index of future company outlook plunged from 21.8 to 2.5, its lowest reading in more than two years.
  • Some 29% of respondents anticipate increases in raw materials prices over the next six months, while 19% expect declines.
  • And the wages and benefits index receded from 25.2 to 19.1, suggesting some moderation in upward pressure on compensation costs.

As a reminder, we recently showed how low oil prices have hurt Houston. The trend will only get worse if there is no recovery in the price of oil. The good news is that Texas is not expected to fall into another 1980s trap — not yet at any rate.

The Dallas Fed conducts the Texas Manufacturing Outlook Survey monthly to obtain a timely assessment of the state’s factory activity. That assessment is simply not very good.

ALSO READ: Saudi Arabia Exports 20% of the World’s Oil

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