Texas Manufacturing Drops to Near-Recession Levels

Statistics from the month of April are showing a mammoth drop in the rate of manufacturing in the state of Texas, bringing levels to near-recession levels, according to the Federal Bank of Dallas.

The state has been hit particularly hard by the collapse in global oil prices, as well as the coronavirus pandemic, according to a report from the Federal Reserve Bank of Dallas. The Fed’s production index - a temperature check on the rate of manufacturing in the state - dropped to negative 55.3, down from negative 35.3 in March; the lowest rate since the report was created in 2004.

You can access the report in full here

The new orders index dropped 26 points to negative 67 points, while the growth rate of orders fell to negative 62.2. “The capacity utilizastion and shipments indexes fell -54.5 and -56.6, respectively. The capital expenditures index declined 20 points to -54.3. Each of these April readings represents a historical low,” wrote the authors of the report.

The world’s largest shale-oil field is in the state of Texas, and the production of oil requires manufacturing and equipment on a huge scale, as well as help from the ancillary industries manufacturing pipes, tools, transportation equipment and parts for all of the above.

Russia and Saudi Arabia’s conflict over oil pricing had led to almost unprecedented drops in the cost-price for barrels of oil. While the two have now agreed on a production cap to bring back viable prices, the collateral damage of this conflict has struck the state of Texas remarkably hard.

With the sudden price drop of oil, the report noted that “oil companies are all now in survival mode, from the smallest to the largest,” an anonymous source told the authors, likely involved in the machinery manufacturing or oil industry. “That has really hurt our plans, from paying off debt to buying new equipment,” they said.

This has created massive unemployment numbers, with a reported 24% of organisations in the state issuing layoffs and reducing employees wages and hours. Just 3% of firms that took part in the survey reported net hiring, while the total hours worked index dropped 18 points to 40.2%.

The report notes that other manufacturing industries have also reported negative growth, with orders, capacity utilisation, shipments and capital expenditures reaching all-time lows. More significantly, the authors noted that “the wages and benefits index dipped into negative territory for the first time since the Great Recession,” coming in at -2.7.”

An unnamed source told authors of the report that “we have no visibility on orders and sales demand more than 30 days out… it is a highly uncertain and depressed overall business environment.”

The Fed asked organisations specifically how hard they were impacted by the coronavirus pandemic, and the response was resoundingly clear. 81% of the 407 organisations that took part in the survey’s methodology responded that the virus had negatively impacted their operations, production, revenue and sales.

59% of respondents said that their firm was operational, while 33% said that they were forced to temporarily shut down their operations.

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