Economy

Google Ad

It is clear the collapse in oil prices has had unintended consequences. In Texas the Dallas Fed manufacturing index for December slid a massive 22.5 points to -5.1 from +17.6 in November. Texas buinesses are also being negatively impacted by the trade war.

Dallas Fed Manufacturing 12 18

The Dallas Fed Manufacturing main Index has dropped dramatically

The Dallas Fed said that perceptions of broader business conditions turned slightly negative in December.

  • The general business activity index plummeted 23 points to -5.1, hitting its lowest level since mid-2016.
  • The company outlook index also fell markedly, dropping 17 points to -3.4, also a two-and-a-half-year low.
  • More than 20 percent of manufacturers noted their outlook worsened this month.
  • Labor market measures suggested continued but slightly slower employment growth and longer workweeks in December. The employment index retreated five points to 11.0, a level still above average.
  • Twenty-two percent of firms noted net hiring, compared with 11 percent noting net layoffs.
  • The hours worked index held steady at 5.0.
  • Price increases eased further in December, while wage growth picked up slightly.
  • The raw materials prices index slipped five points to 28.8, and the finished goods prices index ticked down one point to 6.6. Both came in near their average levels.
  • Meanwhile, compensation costs continued to rise at a faster clip than normal. The wages and benefits index moved up four points to 29.2, with nearly 30 percent of firms noting an increase from November.
  • Expectations regarding future business conditions remained positive but retreated notably in December. The indexes of future general business activity and future company outlook fell 23 points to 3.2 and 8.8, respectively. Most other indexes for future manufacturing activity also posted double-digit declines this month but remained solidly in positive territory.
  • The production index, a key measure of state manufacturing conditions, inched down one point to 7.3.
  • Other indexes of manufacturing activity also suggested modest growth in December, although demand growth picked up a bit.
  • The capacity utilization index fell from 9.4 to 7.6, and the shipments index dipped to 6.1.
  • Meanwhile, the new orders index moved up five points to 14.4, and the growth rate of new orders index edged up to 5.8.

The Oil Price Slump Mirrors the Manufacturing Slump

MW WTI W 12 28 18

Coupled with lower oil and gas prices the trade war is hurting companies in the region:

Comments from Questions to the Dallas Fed Survey

Some utility companies understand and will accept some price increases due to steel price and shipping cost increases. However, some large privately funded and federal jobs are now sourcing their steel structures from foreign sources, causing us to be price uncompetitive.

Competition from India, China and South Korea has resulted in a substantial decrease of business for us. Although raw steel has tariffs on imports, the finished goods resulting from the raw materials do not. This has given our foreign competition a very unfair advantage over U.S. manufacturers.

Our ability to pass increases in costs (including wages) along to customers is somewhat harder because new contracts and agreements require extended price guarantees for multiple years, with one exception. Increases in raw material costs remain easy to pass along.

Operating margins have decreased slightly in the past six months because revenue declined unexpectedly while investment in personnel (additions and advanced training) increased in line with performance in the first half of 2018. However, this margin is a substantial increase from the previous year.

Property taxes exceed any inflation. Manufacturers are all increasing prices due to wage pressures and potential tariffs. Customers remain very price sensitive. Increased interest rates will bring on the recession. The Federal Reserve has completely misread the data it is using.

Source:Texas Manufacturing Outlook Survey December 31 2018

From The TradersCommunity News Desk

Log in to comment
Discuss this article in the forums (3 replies).