“Our Goal Has Been to Survive Until the Third Quarter”

Good thing – for once – that the US has a service-oriented economy. Otherwise some states would be in terrible shape. Because, for many manufacturers in Texas, Oklahoma, New Mexico, and a number of other states, life is getting tough. And don’t just blame the oil bust. That’s what the Kansas City Fed reported last week, and that’s what the Dallas Fed reported today.

“Perceptions of broader business conditions worsened further” in May, the Dallas Fed said in its Texas Manufacturing Outlook Survey. “Labor market indicators reflected employment declines and shorter workweeks,” with only 12% of the firms reporting net hiring, but with 21% reporting net layoffs.

The general business activity index dropped to -20.8, in the negative for the fourth month in a row, worst level since June 2009:

US-Texas-manufacturing-general-business-activity-index-2007_2015-05

The company outlook index fell to -10.5, for the fifth month in a row in the negative and at the worst level since July 2009. The shipments index plunged to -13.2, the worst since October 2009. The “key” production index dropped to -13.5, the worst since May 2009:

US-Texas-manufacturing-production-index-2007-2015-05

But these folks who have to fight it out on a daily basis in the trenches of the deteriorating Texas economy remain an admirably optimistic bunch when it comes to the future, which is turning outright rosy:

The index of future general business activity surged 11 points to 4.9, and the index of future company outlook jumped 10 points to 15.1. Indexes for future manufacturing activity also moved up markedly, pushing further into solid positive territory.

For some manufacturers, everything seems to be hunky-dory – “Our business has been good this spring, and we expect it to stay that way through the third quarter,” one of them said. But others are not so lucky, and deep worries permeate their comments. Some blamed the oil bust. Others blamed the wet weather, the tightening labor market in the Dallas-Fort Worth area (even as other areas are hit by layoffs), and foreign competition that is eating their lunch:

Primary Metal Manufacturing:  “Imported steel continues to be a big problem in Houston, but it is also negatively affecting volume and pricing in the entire country.”

Fabricated Metal Manufacturing:  “We don’t feel confidence anywhere, but we are feeling cost pressures.” Or: “The oil and gas exploration and production industry continues to worsen since last year’s peak.”

Machinery Manufacturing:  “We’ve maintained the position that we need to give the oil market time to settle, so our goal has been to survive until the third quarter.”

Computer and Electronic Product Manufacturing:  “Our company, which ships internationally, is facing increased stiff competition from South Korea, China, and India. We are losing sales primarily to these three countries.”

Wood Product Manufacturing:  “We sell to new single-family home builders. Wet weather has slowed down the development of raw land into ready lots and the home construction process as well. It has affected our shipments for the last two months….”

Printing and Related Support Activities:  Our headcount is down as we’ve lost employees to competitors and other opportunities. We actually need to hire several employees in the next couple of months to hit staffing goals, hopefully tapering off by the end of the year. The labor market has become very competitive in Dallas–Fort Worth. We’re battling to keep our best young talent.

Miscellaneous Manufacturing:  “The California shipping strike hurt our inventories and shipping. It is still backed up. The oil drilling slowdown has made a number of good people available for work until the next drilling pickup. Recent rain and floods may hurt May retail.”

But it’s not just in Texas.

“Factories in our region saw an even sharper decline in May than in March or April, as exports fell further and energy-related producers saw another drop in orders,” reported the Kansas City Fed last week in its Manufacturing Survey. The District covers the western third of Missouri; all of Kansas (aircraft manufacturing hub Wichita), Colorado, Nebraska, Oklahoma, and Wyoming; and the northern half of New Mexico.

The month-over-month composite index plunged to -13 in May, the third month in a row in the negative, and the worst level since April 2009.

US-Kansas-city-manufacturing-index-2015-05

The report pointed out that production “fell most sharply in energy-producing states like Oklahoma and New Mexico, but it was also down in most other District states.” Again, there’s more going on than just the oil bust.

Faced with this terrible manufacturing scenario in that part of the US, we are – for once – relieved that manufacturing only accounts for 12% of the US economy, after manufacturers spent decades offshoring much of their labor content to cheap countries. So fast-food joints, retailers, the startup bubble in biotech outfits and app makers, people driving their own cars for Uber, and a million other activities will have to fill the holes that manufacturing is leaving behind. If not, it could turn into a real drag.

Manufactured goods, unlike apps, biotech research, and the like, are shipped globally. But something is happening that isn’t supposed to happen. Read…  Global Trade Dives Most since the Financial Crisis

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  9 comments for ““Our Goal Has Been to Survive Until the Third Quarter”

  1. Vespa P200E
    May 26, 2015 at 2:33 pm

    “Faced with this terrible manufacturing scenario in that part of the US, we are – for once – relieved that manufacturing only accounts for 12% of the US economy, after manufacturers spent decades offshoring much of their labor content to cheap countries. So fast-food joints, retailers, the startup bubble in biotech outfits and app makers, people driving their own cars for Uber, and a million other activities will have to fill the holes that manufacturing is leaving behind. If not, it could turn into a real drag.”

    Indeed the better paying mfg jobs with benefits are in doldrums. It was the mfg jobs that brought Black and other minorities into middle class. We now have sharing social BS biz now taking over along with other lower paying service jobs with little to no benefits (and those in such industry getting government assistance to get by). And more and more small biz owners are squeezed by rising labor costs and Obozocare. As for biotech – at least it is much better paying jobs. God forbid USA gets itself intertwined into another war as without basic mfg industry, it will be uphill battle and it was the mighty USA’s mfg capacity and capability that resulted in winning last World War,

    • Scott B
      May 27, 2015 at 6:23 pm

      The Affordable Care Act, regardless of the Goebbels-like propaganda, has been a success, and the typical “squeeze” on employers, is on employers who offered the “faux insurance” that was worse than no coverage at all. Give up the lost cause, Vespa, of denouncing the ACA; it is far from perfect, but the number of people praising it as a financial salvation runs about 100 to one to those actually feeling worse off.
      The US spends more on defense than all other countries combined….don’t worry about “another war” and manufacturing. You have your conclusions, and you’re working backwards!

  2. michael
    May 26, 2015 at 2:46 pm

    Do not worry Yellen says its “transitory.’

  3. NOTaREALmerican
    May 26, 2015 at 6:28 pm

    If everybody in Texas would simple get a student loan everybody could be as rich as the inhabitants of the bucolic college town I live in.

    What we need is unlimited student loans for everybody in the country.

  4. Julian the Apostate
    May 26, 2015 at 7:32 pm

    I can hear the Fed coffee clatch clucking about those tin-foil hat doomies confusing the issue with the facts again, ranting about things like FUNDEMENTALS again! OMG WHAT IF PEOPLE START PAYING ATTENTION! SOMEBODY SHOULD DO SOMETHING ABOUT THOSE CHICKEN LITTLE TYPES! We’ve told them and told them, WHAT DOES IT MATTER NOW?? Oh Hi Hillary, when did you come in. Do you know Jeb? Wait a minute… That pink pantsuit and…and… Is that a cat’o’nine tails? Run Jeb! Dammit, Janet DO SOMETHING!

  5. Mike R.
    May 27, 2015 at 6:10 am

    The Fed knows things are bad. The good news propaganda has been ongoing since the crisis of 08 and is part of their ‘tool kit’ to keep things moving. For the uneducated / uninformed/ naive, the propaganda does help things some (on the margin). For the rest of us, can be a bit crazymaking.

    As the economy tanks in 2015, the propaganda has to crank up even harder to provide cover for the Fed to achieve a “win” by raising interest rates a tiny bit. “See, we told you we would start to normalize policy…..and we did it!” That is the goal and they will raise 1/4 pt probably sooner than later as if they wait too long, it will be soooooo obvious that the economy can’t support it.

    This is the playout in 2015. Things will continue to lope along and probably worsen. Who knows what 2016 will bring.

  6. Fella
    May 27, 2015 at 12:28 pm

    It is high time to bring in the tomato plants. I fear doom is here.

  7. Mahalia Jackson
    May 27, 2015 at 7:35 pm

    New Mexico is scratching by. Santa Fe has about 2,000 foreclosures. Downtown is 20% vacant for the first time since 1940. They keep building Dollar Stores and fast food joints. The sprawl is extreme, but all the jobs are military related. Gotta laugh at anyone thinking there is a recovery. I have clients in Lubbock, and they are all being real careful. Of course, we finally got the chem trails happening here. There should be a citizens class action suit against the federal govt to litigate the chem trails and sue the feds forever for the environmental and health damage. Can hardly wait for this federal ship to go down…..I’m thinking the Chinese and Russians are real progressive compared to what’s here now….Monsanto snaps its fingers at Hillary.

    Good news is, it can’t last much longer. Bring on the war. The leaders are cowards and won’t bully Russia and China much, though. Cowards. That’s why they are so secret about everything…..that and the fact that the real string pullers are those egg heads tucked away, above even the Rothschilds.

  8. interesting
    May 28, 2015 at 8:50 pm

    I’ve posted this before but i work in manufacturing and the workload has fallen off a cliff, much worse than 2007

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