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The oil crash has 'everyone on pins and needles' in Texas

texas oil worker
texas oil worker

(DeGolyer Library, Southern Methodist University, Dallas, Texas)

Manufacturing activity in Texas collapsed in August.

And the fear is all about oil.

The latest manufacturing index from the Dallas Fed came in at -15.8, way below expectations.

Economists had expected the reading to come in at -3.8, slightly better than July's -4.6 reading but still indicating a decline in activity in the region.

August's worse-than-expected decline reflects both a deterioration in current business output and a depressed view about future activity.

Over the past nine months, this report has been closely watched as markets look for signs of how the crash in oil prices is affecting businesses in Texas, the epicenter of the recent US oil boom.

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In the latest report, one executive in the primary-metal manufacturing industry said simply, "Overall business is slowing."

As for the impact oil prices are having, the commentary was negative across the board.

Comments from executives in the fabricated-metal manufacturing industry said the decline in oil prices was "expected to soften the demand for our basic fabricated products."

In the same industry, an executive added, "August will be our worst production and delivery month since March 2014."

In the machinery manufacturing industry, one executive gave the broadest overview of how oil was hampering the Texas economy:

July was a particularly bad month for the oil patch. August has shown an uptick as people are showing signs of releasing orders, i.e., pent up demand. Customers have starved vendors for the first half of the year, and things are turning loose now. Who knows how long it will last. Uncertainty about where the price of oil is headed has everyone on pins and needles.

Through the summer, oil prices made another leg lower after stabilizing at around $60 a barrel during the spring.

Earlier in August, West Texas Intermediate crude fell to a new post-financial-crisis low below $38 a barrel. After a wild 20% rally at the end of last week, WTI was down about 2% on Monday to trade near $44 a barrel, about 60% below where it was a year ago.

fut_chart (37)
fut_chart (37)

(FinViz)

An executive in the miscellaneous manufacturing industry said, "Oil and gas prices, weather, world outlook, and politics make for a poor forecast."

The report also showed that business leaders were feeling the impact about broader worries regarding the volatility in the stock market of late.

"The volatility in the stock market and decreased energy costs always have a negative impact on replacement windows orders," one executive said. "Even though there is a substantial decrease in raw material prices, capacity levels in PVC and glass are extremely constrained. The reason for the decreased capacity levels is that during the housing crisis no capital expenditures were made and now most vendors are at full capacity."

Overall, this report indicates that the economy in the region is simply not doing as well.

"There seems to be a general slowdown in the regional economy," one executive said. "We typically get busy in the August-to-December time frame, and while we are seeing an uptick in activity, it's below what we expected. August billing will be much lower than July, and July was a weak month."

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