HOUSTON — Texas manufacturing slowed the most in 11 years this month amid crashing crude prices and a rising dollar, the Dallas Fed said Monday, as previously reported signs of a sharp incoming slowdown finally materialized.
The Federal Reserve Bank of Dallas’ previous gloomy forecasts for new orders and other growth indexes came true in January “in a big way, with some indexes reaching levels not seen since the last recession,” Dallas Fed business economist Emily Kerr said in a written statement.
The Dallas Fed’s production index, a broad measure of Texas manufacturing, fell by 23 points to -10.2, after three months of growth. Fed data show it was the sharpest one-month decline since January 2005 and the second-lowest reading since the national financial crisis in 2009.
“It is getting pretty ugly, and the strength of the dollar is making us noncompetitive,” one fabricated metal product manufacturer told the Fed in a survey. When the value of the dollar increases, U.S. manufacturers are at a disadvantage in international markets because the cost of their goods are more expensive for foreign buyers.
Other manufacturers told the Fed the “depression in the oil and gas industry” is also holding down demand in Texas, which grew the bulk of the nation’s surging shale-oil production in recent years. Manufacturers reported major job cuts and facility closures and said there aren’t any big signs conditions will change in the first half of the year.
U.S. crude sank $1.69 to $30.50 a barrel on the New York Mercantile Exchange on Monday, a 5-percent drop following last week’s sharp oil-market rally. Global benchmark Brent fell $1.37 to $30.82 a barrel on the ICE Futures Europe.
The Dallas Fed said its monthly forecast for Texas companies had its first negative reading since the height of the financial crisis in 2009, and its measure of general business activity was the worst since the recession.
Lagging manufacturing activity is translating into job cuts. About 21 percent of the Fed’s surveyed companies said they cut payrolls in January, and the Fed’s employment index turned from positive in December to negative in January, in the steepest one-month drop in a year and a half.