Texas Manufacturing Activity Slips as Order Growth and Capital Expenditure Slump

Dallas Fed Manufacturing index for June slid further negative to -12.1, lowest since December as trade war and falling energy prices unintended consequences continue to hurt Texas. Worrisome is orders growth rate -6.7 versus 1.1 May capital expenditures 6.9 versus 18.3 last month

Dallas Fed Manufacturing index for June slid further negative to -12.1, lowest since December as trade war and falling energy prices unintended consequences continue to hurt Texas. Worrisome is orders growth rate -6.7 versus 1.1 May capital expenditures 6.9 versus 18.3 last month

Dallas Fed Manufacturing 6 19

The Dallas Fed Manufacturing Main Index Contues To Plummet

Dalls Fed June Highlights

  • Manufacturing activity index -12.1 v -2.0 estimate. Prior month  -5.3.
  • Production index 8.9 v 6.3
  • General business activity -12.1 index -5.3, hitting a three-year low.
  • Company outlook index -5.5 to -1.7 , also a three-year low.
  • index Measuring uncertainty regarding companies’ outlooks 21.6, highest reading since question was added to survey in January 2018.
  • Capacity utilization 9.6 v 7.7 last month
  • New orders 3.7 v 2.4 last month
  • Orders growth rate -6.7 v 1.1 last month
  • Number of employees 8.8 v 11.6 last month
  • Average employee work week 4.7 v 6.4 last month
  • Capital expenditures 6.9 v 18.3 last month
  • Prices paid 16.4 v 7.4 last month
  • Prices received 1.2 v 0.7 last month
  • Wages 22.7 v 27.6 last month
  • Shipments 1.7 v 7.6 last month
  • Unfilled orders 3.4 v -1.6 last month


The Oil and Natural Gas Price Slumps Mirror the Manufacturing Slump

MW NG W 6 21 19

MW CL W 6 21 19

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 seen a slight increase in exports.

Primary Metal Manufacturing

We have seen a decline in energy-related orders, specifically with the oil and gas sector. Another key issue we continue to face is the lack of available workforce applicants. We simply cannot fill openings, both skilled and general manufacturing labor. There is a desperate need in all sectors we work with for additional work visas.

Fabricated Metal Product Manufacturing

I don’t care what the indicators say—things are slowing down in energy and manufacturing. Construction is still strong(ish). But, customers are shopping every nickel, quoting and requoting; no one wants inventory. Steel prices are dropping like a rock due to lack of demand and overcapacity. It is rough waters right now, for the last 60–90 days.

We have significant project quotes outstanding, but there seems to be a slowdown in the owners’ willingness to start projects.

Nonmetallic Mineral Product Manufacturing

Tariffs simply increase our raw materials prices, which we pass on to our customers in the form of price increases on new projects. It does not affect us competitively because our competition has the same issue.

China tariffs are a big drain on profits, so we are covering with a general price increase July 1. Future improvements are expected due to new product introductions.

Machinery Manufacturing

Uncertainty stifles hiring, expansion and capital expenditures. Threats of tariffs cause uncertainty. The businesses lobbying for tariffs are incapable of competing on a level playing field. Those businesses should be allowed to fail and make room for new businesses. Using public money to support private business allows the government to buy votes and pick winners. Central planning is a failed philosophy. Better to allow the “creative destruction of the free market” to rid itself of inefficient producers.

It is hard to quantify, but we’ve taken steps to prepare for a slowdown even though we’re not seeing it yet. We are still quoting many jobs, but we are receiving feedback that business development is taking hard looks at everything now. I believe that with oil prices falling, oil companies will pull back their budgets, and that we will be affected. Consequently, we’ve canceled or reduced orders for inventory and are lowering inventory levels substantially. Debt reduction is a very high priority now.

The Chinese tariffs remain the wildcard, as it has started to take its toll on the electronics industry in which we are heavily involved. This tariff issue really needs to get settled.

As with all things oilfield, it’s either full tilt or dead in the water. There is no in between. Right now, it has suddenly gone full tilt. However, there is no skilled labor to be had. We could triple our sales with two or three skilled people. I wish our country had a smart immigration policy of bringing in those with talent and skills.

Computer and Electronic Product Manufacturing

We continue to work through what appears to be a cyclical industry correction. The trade tension impact is unclear but certainly not helpful.

The tariffs on goods from China could have a major impact; however, we have been watching this for a while, so at this point, it has not changed our outlook. If tariffs on all actually go into place, then we may have to change our outlook.

Electrical Equipment, Appliance and Component Manufacturing

Things are good. Margins this year are squeezed a little by competition.

Transportation Equipment Manufacturing

January through June will show a 25 percent increase over 2018.

We saw a reduction in order volume compared with our forecast earlier this year and revised our 2019 forecast down to accommodate that. Since our downward revision, orders and activity have been flat, in line with our revised forecast.

Food Manufacturing

We are experiencing disruptions in our supply chain, some off them reportedly caused by tariffs on Chinese raw materials that have cascaded the disruption into materials we buy to manufacture some of our products (e.g., food grade pigments). Also, we just experienced a lot of uncertainty on incoming goods from Mexico because of the threatened tariffs. We are still trying to normalize our supply chain, but there is a lot of uncertainty from Mexican suppliers. At this point, uncertainty has reached a point where capital expenditures projects are being delayed or placed on hold.

Trade uncertainty is creating softness in our markets.

Textile Product Mills

There’s lots of big business in the pipeline; we’re just slow on orders for this month. Apparel Manufacturing Military apparel orders appear to be strong for the next 12 months.

Paper Manufacturing

We are still stuck in a slow environment.

Printing and Related Support Activities

We cannot explain it, but we have gotten stupid slow, with incoming orders lagging way behind last year to date. At this rate, this will be the lowest year in over 15 years. All of our customers are complaining about being slow. Perhaps the economy is not in as good a condition—with all the uncertainty coming from Washington, D.C., people are afraid to pull the trigger on projects. Then adding on to our issues, San Antonio is about to implement mandatory paid sick time for hourly workers, adding even more pressure on profits, as we predict there will be widespread abuses of this. Most likely, this will result in a reduction in the workforce to cover the cost.

Miscellaneous Manufacturing

We need all the Democrats and all the Republicans to get on board with efforts to improve trading agreements and open foreign markets to U.S. business. Foreign governments won’t cooperate if we are divided and they think political change will allow them to keep taking advantage of our country’s historically bad trade deals. This political gridlock is hurting American business interests, and the tariffs and fear of increasing tariffs are not good. It is time we get fair trade, and we need everybody working together for the good of the country.

Threats of new tariffs on trade with Mexico are causing uncertainty. Several large-volume customers have assembly plants on the border with the U.S. Business volume is down across all industries we serve, particularly OEM [original equipment manufacturers] automotive.

Source:Texas Manufacturing Outlook Survey June 24 2019

From The TradersCommunity News Desk

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