Oil prices hurt Texas manufacturing in August

Manufacturing dropped in August, according to a Dallas Fed survey.

A new report shows that recent falling oil prices are having a negative effect on the manufacturing industry in Texas.

According to results released last week by the Federal Reserve Bank of Dallas, general business activity took a hit in August, dropping 11.2 points to a score of -15.8. The score represented the eighth consecutive month that the index yielded a negative score. Company outlook fell slightly more, decreasing 11.5 points into the red to a score of -10.3.

The two scores are composite scores on the Dallas Fed's monthly Texas Manufacturing Outlook Survey (TMOS). The bank sends out questionnaires to manufacturers across multiple industries to produce the TMOS, which is considered a benchmark for gauging the strength of manufacturing and the economy in the state. A positive score indicates strong conditions and growth while a negative score signifies weak conditions and contraction.

While one metal manufacturer was anonymously quoted in the report as just saying that overall business is slowing, an executive in the machinery industry provided a culprit.

"July was a particularly bad month for the oil patch," the executive said. "Uncertainty about where the price of oil is headed has everyone on pins and needles."

The drop off in the business activity score can be contributed to four of the sub-categories, which showed double digit decreases from July's survey: new orders, materials inventories, finished goods inventories and prices received for finished goods. Of the 15 sub-indices that comprise the TMOS, only four yielded positive results: delivery time, hours worked, capital expenditures and, the largest, wages and benefits at a score of 18.2. 

According to another executive in the survey, the busy period of the year is August through December, so the positive wages and benefits result is likely a result of companies gearing up for the busy season. As such, both company outlook and general business activity were positive for six months ahead, at 6.4 and 3.4, respectively.