Low Oil Prices Slamming Texas Economy, Manufacturers Spencer Platt/Getty Images

Low Oil Prices Slamming Texas Economy, Manufacturers

The business economy in Texas is taking a beating with fall in oil and gas prices along with the strong dollar, and the outlook for recovery isn't good.

The business economy in Texas is taking a beating with fall in oil and gas prices along with the strong dollar, and the outlook for recovery isn’t good.

The latest report from the Federal Reserve Bank of Dallas shows the state manufacturing index dove -17.4 from -11.2 in January. That number came in well below estimates calling for a -9.

Factory activity fell in March, according to those businesses responding to the Texas Manufacturing Outlook Survey. That sent the production index falling to -5.2, the first time the index has been in negative territory in almost two years.

 The down results hit all the main manufacturing sectors: new orders came in at -16.1 and the growth rate, despite an edge up, was negative for the fifth straight month. Meanwhile shipments fell to -8.7 and capacity was down to -6.4.

The employment index for March dropped to -1.8, the first time the number has been negative in nearly two years. Net layoffs have eclipsed hiring and the average hours worked continues is six-month decline.

Survey respondents for the most part put all the blame on the struggling oil industry. One machinery manufacturer said he expects the struggle to continue, “We expect a further drop in oil prices down below $40 per barrel. This will cause reduced sales of our capital equipment in the oil field. Increased focus on sales outside of the oil field has helped to maintain sales. We are seeing good overseas sales in spite of the strong dollar. Brazil appears to be on the path to recovery as sales have improved.”

Another respondent whose company deals in fabricated metal manufacturing says they’ve been here before, but it’s not the same. “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”

Other factors dragging on the Texas economy are the strong dollar hurting exports, harsh weather, and a weakened demand for computer products, partially tied to fewer exports.

Follow this link to see the full Texas Manufacturing Outlook Survey from the Federal Reserve Bank of Dallas.

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