Texas Manufacturing Activity And New Orders Slide With Energy Prices

The trade war and falling energy prices unintended consequences continue. The Dallas Fed Manufacturing index for May slid negative to -5.3 from expected +5.8, the lowest since December. Worrisome is new orders crashed 75% to +2.4 from +9.8 prior.

The trade war and falling energy prices unintended consequences continue. The Dallas Fed Manufacturing index for May slid negative to -5.3 from expected +5.8, the lowest since December. Worrisome is new orders crashed 75% to +2.4 from +9.8 prior.

Dallas Fed Manufacturing 5 19

The Dallas Fed Manufacturing Main Index Has Given Up Recent Gains

Perceptions of broader business conditions exhibited some weakness in May.

  • The general business activity index turned negative and reached a year-to-date low of -5.3.
  • The company outlook index dipped into negative territory for the first time this year, coming in at -1.7.
  • The index measuring uncertainty regarding companies’ outlooks jumped nine points to 16.1, its highest reading since last September.
  • More than a quarter of firms said uncertainty increased this month.

Slight upward pressure on input costs continued in May, while pressure on selling prices abated. The raw materials prices index held steady at 7.4, a three-year low. Meanwhile, the finished goods prices index retreated from 6.0 to 0.7, with the near-zero May reading suggesting virtually no growth in selling prices. The wages and benefits index remained elevated and largely unchanged at 27.6.

Expectations regarding future business conditions remained positive in May, although the indexes moved down from April readings. The index of future general business activity fell nine points to 9.1. Similarly, the index of future company outlook fell nine points to 11.5. Most other indexes of future manufacturing activity declined this month but stayed in positive territor

Coupled with Lower Oil and Gas Prices the Trade War is Hurting Companies in the Region:

MW WTI W 5 24 19.1

The Oil and Natural Gas Price Slumps Mirror the Manufacturing Slump

MW NG W 5 24 19

Comments from Questions to the Dallas Fed Survey

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

Chemical Manufacturing The decline in May figures versus April were a result of a fire at one of our largest customers’ facilities, which delayed several of the projects on which we were working with them. Uncertainty has increased due to the tariff war.

Primary Metal Manufacturing The possible increases in tariffs related to China will negatively impact our agriculture customers and put further pressure on a segment that is already experiencing cyclical lows.

Fabricated Metal Product Manufacturing There is a definite slowing in steel fabrication. Competition from Mexico from non-tariffed steel fabricators is very troublesome and we are losing market share. We are at maximum capacity and turning away business.

Nonmetallic Mineral Product Manufacturing There are many unknowns due to tariffs. Extensive rains have delayed shipments over the last three months to customers in the Dallas-Fort Worth area. This is causing a backup of finished goods inventory at our plant.

Machinery Manufacturing There has been a sharp decline in orders, and pricing has taken a huge dive as well. Competition has pushed pricing to near-guaranteed losses. With all the tariff fees pouring into the U.S. Treasury, when should we expect a tax break? We are seeing steady business that should begin to grow again if a China trade deal is reached. Our business is improving consistently even though we have increased some prices. Fortune 500 companies are looking for stable small companies to depend on for consistent support and service. And that is what we have focused on over the past two years to fortify our business growth. Now we need to find and develop new middle-tier employees to fill positions to support our customers. This is the toughest problem we have ever faced. China tariffs were already causing significant price increases, and the latest escalations will raise our costs even more—probably our prices, too—and make us less competitive on the world stage where we export 70 percent of what we produce.

Computer and Electronic Product Manufacturing Trade talks with China could have a longer-term impact but have no impact at this point. Growth is robust and would be even stronger without current supply chain and labor constraints, but we aren’t complaining. With our government’s intention to resolve issues with Iran and China and also introducing the “Deal of the Century,” it adds warranted risk to our future business that we can’t ignore. There is significant uncertainty.

Electrical Equipment, Appliance and Component Manufacturing

We make electric wire for the construction and remodeling industry. We probably lag the economy because big construction projects take to time to imagine, design, permit, finance, bid out, etc., before the first shovel breaks ground. Then it can take a year or two more to build it. We see very strong demand in the field right now. Contractors say they are booked a year out. Somebody mistakenly told people to all go to college 40 years ago, and now we are desperately short of tradesmen.

Printing and Related Support Activities We continue to be much slower than normal, which is very frustrating. Now we have uncertainties around tariff battles looming, which does not bode well for our business. Capital spending is up only because we found a good deal on a piece of equipment that allows us to add to our capabilities at a cheap price, so we bought it at an auction for pennies of what it sold for new. We are now 30 days in on a price increase—we will see if it can hold. With costs all around us increasing, we have no choice but to raise prices.

Textile Product Mills We are finding larger orders, and larger customers require us to outsource to others in the Dallas–Fort Worth area to help us keep up. The outsourcing model is the key to our exponential growth. Apparel Manufacturing Government spending, specifically Department of Defense, continues to be strong in the near term and foreseeable future. Paper Manufacturing Slowness continues.

Transportation Equipment Manufacturing We are changing our business model to increase volume, with pricing based on wholesale margins versus retail margins. This change is to be phased in over six months. Our primary customer is the U.S. government. We continue to be concerned regarding the volatility of the decision-making processes at the higher levels.

Miscellaneous Manufacturing The additional import tariffs really hurt our business, but we fully support getting a fair trade deal with China.;

Source:Texas Manufacturing Outlook Survey May 28 2019

From The TradersCommunity News Desk

Leave a Reply

Your email address will not be published. Required fields are marked *