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Manufacturing activity in Texas is plunging, and the crash in oil prices is to blame.
The Dallas Fed’s February manufacturing index fell to -11.2, down from -4.4 in January and well below the -4 reading that was expected.
In the last couple of months, this report has been in focus as business owners in Texas take stock of how the decline in oil prices is weighing on the state’s economy.
And Monday’s report was no different.
One business executive in the primary metal manufacturing sector said: “There has been a rapid decline in orders over the past 30 days, primarily in energy-related work. Overall, business has declined by 30% in the past month, and our forecasts, based on customer feedback and order volumes, indicate further decline in overall business.”
A business leader in the machinery manufacturing sector said:
Oil at $50 per barrel is painful. We laid off 25 percent of our workforce to match labor with demand. The current thinking is if we can get through the first half of 2015 unscathed, we will be okay in the second half. We’re optimistic that things will be better in the second half of the year in the offshore energy market.
From the same sector, business executives said: “The oil price is driving down drilling activity in North America, and our business is strongly correlated to the number of active drilling rigs. We have a tough couple of quarters ahead.”
The dollar has also weighed on activity in the state, with an executive in food manufacturing saying exports had “slowed significantly” because of the dollar’s elevated valuation, while the lower cost of energy is helping production and transportation expenses in this sector.
And it was an executive in the machinery manufacturing sector who noted that while oil prices had collapsed, the full impact of this was far from making its way through the economy:
“Oil prices have not affected backlog or sale yet. But we assume that they will in the future.”
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