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Texas factory activity declined sharply in March the Dallas Fed Manufacturing index showed, the effect of Covid-19 and collpasing falling energy prices continue to hurt Texas. Worrisome is the production index, a key measure of state manufacturing conditions, plummeted from 16.4 to -35.3.

 Texas Manufacturing march 2020

March 30, 2020 Texas Manufacturing Activity Contracts Suddenly, Outlook Worsens

Dalls Fed March 2020 Highlights

Texas factory activity declined sharply in March, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, plummeted from 16.4 to -35.3, suggesting a notable contraction in output since last month.

Other measures of manufacturing activity also point to a sudden decline in March. The new orders index dropped to -41.3, its lowest reading since March 2009 during the Great Recession. Similarly, the growth rate of orders index fell to -44.9. The capacity utilization and shipments indexes fell to -33.4 and -33.8, respectively, also the lowest readings since the Great Recession. Capital expenditures declined sharply, with the index dropping from 6.9 to -34.3.

Perceptions of broader business conditions turned quite pessimistic in March. The general business activity index plunged from 1.2 to -70.0, and the company outlook index fell from 3.6 to -65.6. Both March readings are the lowest since the survey began in June 2004. The index measuring uncertainty regarding companies’ outlooks surged from 11.0 to 62.6.

Labor market measures indicate employment declines and shorter workweeks this month. The employment index fell to -23.0 from its near-zero reading in February. Three percent of firms noted net hiring, while 26 percent noted net layoffs. The hours worked index dropped to -22.4.

Prices declined in March, and wage growth slowed. The raw materials prices index fell from 12.8 to -5.9. After hovering around zero for the past four months, the finished goods prices index dropped to -9.2. Meanwhile, the wages and benefits index remained positive but retreated 17 points to 5.5.

Expectations regarding future business conditions turned negative in March. The indexes of future general business activity and future company outlook dropped significantly to -39.5 and -37.7, respectively. Other indexes for future manufacturing activity also fell sharply into solidly negative territory.

Data were collected March 17–25, and 110 Texas manufacturers responded to the survey. The Dallas Fed conducts the Texas Manufacturing Outlook Survey monthly to obtain a timely assessment of the state’s factory activity. Firms are asked whether output, employment, orders, prices and other indicators increased, decreased or remained unchanged over the previous month.

Dallas Fed Manufacturing 3 2020

The Oil and Natural Gas Price Slumps Mirror the Manufacturing Slump

WTI W 3 27 2020

NG W 3 27 2020

Comments from Questions to the Dallas Fed Survey

These comments are from respondents' completed surveys and have been edited for publication.

Chemical Manufacturing

We have plans to reduce operations if needed for COVID-19.

COVID-19 and oil prices are having an impact. Long term, we are still booking new business wins. We anticipate three to six months of a rough environment.

The coronavirus impact primarily will hit contractor populations in the short term. Longer term, it will hit company employees.

With governments making policy based on popularity, manufacturing outlooks have worsened.

Nonmetallic Mineral Product Manufacturing

I cannot answer the future-outlook questions—too many unknowns.

Primary Metal Manufacturing

We have an uptick in some businesses due to several customers increasing raw material levels. Others are not accepting shipments. There are mixed signals in the marketplace, but overall we expect business to decline at least 25 percent if not more.

The business disruption due to COVID-19 is causing cancellations and holds from a majority of large customers. We are looking at the possibility of heavy losses for the coming months until the national health emergency stabilizes.

It is uncertain how coronavirus affects our construction industry long term. Rain has hurt shipments, including the bottom line, in both January and February and now in March. This will ruin our fiscal year.

Fabricated Metal Manufacturing

With COVID-19, everything has changed.

The current outlook is that nothing has structurally changed in the economy. The virus response will result in a temporary setback, but warming temperatures will limit the impact for this season. However, there is now uncertainty about the next fall/winter. This is always subject to change.

We are feeling the effect of the coronavirus shutdown and the edict to isolate ourselves and have some work from home. We are also feeling the effect of canceling all of the trade meetings.

We supply the HVAC industry, which is an essential industry and we don't expect to shut down. We are coming in to our busy season, and our order backlog is solid. We hope we can ride out the storm. We are holding our breath.

Regarding the virus, we are a small, essential manufacturing entity with little if any foot traffic. So as long as we keep social distancing in effect (knock on wood none of our workers get exposed), we should be OK. It would be difficult to get any government support. I think being a seven-man operation and with all the pandemic parameters, I don’t have the time or the real know-how to work it out.

We are mostly just concerned.

The virus has not yet directly affected us; however, it is difficult for us to reach most of our potential customers. The good news is we have a large backlog that, to date, is not showing any cancellations.

Machinery Manufacturing

Coronavirus is a game changer and hopefully will be relatively short in duration. Even though we are currently operating and have no supply issues, new activity is flat to nonexistent as of the middle of the month. However, we do think it will rebound when this is all over.

We have serious concern over the COVID-19 implications. Our sales representatives are no longer allowed in many customer locations. The longer-term concern is lower tax revenues among states and municipalities—the impact to their fiscal budgets will result in lower capital appropriations in the near future.

If we see this downward trend continue, we will run out of cash within four months. New orders and inquiries have stopped instantly. Our work in-house will be finished mid to end of April, with no new orders coming in, all due to this real or imagined shutdown.

I believe the country will be in a depression by the fall unless the work environment changes dramatically. We have a long-cycle business model, and the impact of oil price reductions and COVID-19 disruptions have not made their way into our forecasting yet, but the level of uncertainty is as extreme now as at any other time. The reality is, we know things will slow down. We just don’t have the actual data coming in yet to validate that. I believe that we have held up better than most, but we see the cliff approaching fast. Oil companies are about to slam their business down hard, and that will take us with them.

Computer and Electronic Product Manufacturing

We have many issues with our supply chain and transportation of materials but have been able to work through them up to this point. Demand remains uncertain. There was a slow recovery out of China following the Chinese New Year, when demand in rest of the world looked stable. China is now recovering, and demand in rest of the world is obviously becoming more uncertain, and likely weaker.

Trasportation Equipment Manufacturing

We are impacted by the economic slowdown/shutdown and continued consumer uncertainty about the foreseeable future. A certain recession is on the edge of depression based on developments in the next few weeks. The government cannot be the economy, no matter how much money the feds print or Congress authorizes. The more central planners try to manage a free-market economy, they will necessarily feel compelled to manage more—and the more problematic it all becomes.

There is a double threat that we are reacting to: coronavirus lockdown orders and absenteeism, which are impacting productivity and causing supply-chain disruptions short term. Longer term, the crash in oil prices will significantly reduce future orders.

The impact of COVID-19 is substantial and disproportionate on some industries, creating a high level of uncertainty. As we are unable to predict the duration of the impact of the shock on activities, we try to preserve the skills we have built by investing in recruiting, training, etc., when the job market was tight. Adding to the complexities of the managerial decision-making are the wide differences in local governments' decisions and the impact on the workforce; the lack of a clear, universal ruling from the federal government; and the uncertain benefits for employees that could be adversely impacted. It is a time to be a responsible manager as well as citizen.

The coronavirus is taking a big toll on business.

We operate 100 percent in the aviation business, and our outlook is quite affected by the coronavirus’ effect on the airlines and the associated supply chain.

Furniture and Related Product Manufacturing

COVID-19 is causing our customers to shut down, which is rapidly causing us to slow down and cease production for the foreseeable future.

Food Manufacturing

We are still operating at a high level but expect interruptions soon.

We manufacture livestock and pet food. People are buying more than normal due to the virus. We are classified as an essential business.

The shift in food consumption from restaurants and cafeterias to in-home has caused a surge in business over the last 30 days. The workforce remains healthy, as does the raw-material supply chain. However, the shift in demand to packaged food is quickly depleting the finite supply of packaging materials. Shortages of packaging supplies are expected to impact our ability to produce in late April. Additional packaging supplies (sourced globally) are estimated to become available in early June. If high demand for packaged food remains at current levels, serious shortages should be expected in May. The situation is changing daily. Next week will surely have modifications.

We are experiencing supply-chain delays/disruption.

Apparel Manufacturing

The coronavirus has everyone spooked, and we are not sure how much longer we can keep the operation open, as we have so many people confined to such a small area.

Paper Manufacturing

I think that none of us knows how much impact the coronavirus will have on our companies. Presently, I am more concerned with the health and well-being of my family, employees and everyone else. However, I am human, and as a company owner, I do have concerns over what our economy will look like six months from now.

Printing and Related Support Activities

We are almost in a shutdown, with most of our clients closed or about to close and sending no work.

It is all about COVID-19. Business will remain in production as we produce packaging for consumer goods and face masks. Who knows what the economy will look like six months from now? Presently, our order-entry volume is very high (plus-50 percent vs. the prior year) due to food and medical demand. Customers that supply prepackaged food to the hospitality industry (restaurants, bars, hotels) are starting to shut down.

We are very fortunate to have landed a big job that is keeping a lot of our workers busy during what is normally our slow time. Things are very much trending upward with other customers as well until the COVID-19 scare hitting the nation [starts to have an impact]. I am very concerned what that will do for our business in the coming three to six months, but absent that, for the first time in a long time, business is actually pretty robust and healthy for us.

The COVID-19 shutdown is scary!

Miscellaneous Manufacturing

The coronavirus pandemic is increasing the stress on an already strained supply chain. Now is the time to reduce barriers and tariffs to keep the global economy going. Reduced productivity due to reduced staff in the office, as well as inefficiencies with people working from home, is putting downward pressure on revenue in the second quarter. Long-term planning is impossible as things are changing daily. It appears that the damage to the economy could be felt for several quarters or longer and take a few years to recover.

The coronavirus is only affecting about 15 percent of our customers now—but we project that going much higher in future months. We are 43 percent automotive, which is shut down for at least two weeks. We have a dismal outlook. Our bullet manufacturing business is good, but the vital suppliers are located in New York and Illinois—both now shut down. This is awful.

We cut employees’ hours to 35 starting this week. The government is going to have to decide quickly if the measures we are taking to contain the spread are worse than the effect of the virus itself. I fear a worldwide depression.

In a downturn or slowing of business, our business normally improves, but not this time. Too many folks are trapped in their homes. Some of our suppliers are closed, and we can’t get raw materials. Some of our customers are closed or are holding up orders until later. Things do not look good for the near future.

Source:Texas Manufacturing Outlook Survey March 30 2020

From The TradersCommunity News Desk

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