Oil prices linked to factory slowdown

The Federal Reserve Bank of Dallas has reported that responses to its monthly survey reveal that manufacturing executives believe falling oil prices are causing slowdown in the state’s factories.

When crude prices started tumbling in the fall, executives responded to the survey with concerns about how the downturn could dampen business, said Emily Kerr, business economist at the Federal Reserve Bank of Dallas. But as prices have fallen further, those fears have become reality, she said, pointing to the anonymous survey comments that say cutbacks in the oil and gas industry have sapped sales and dried up orders.

The production index, a key indicator of the state’s manufacturing conditions, fell into negative territory in March for the first time in nearly two years, pointing to a contraction in factory activity, according to a survey of 112 Texas manufacturers including some stainless steel fabricators. The pinch seemed most acute for manufacturers who make fabricated metal and machinery parts, particularly those that primarily sell to the oil industry. “Our oil and gas customers have just stopped producing,” one executive from the fabricated metal manufacturing sector responded. “This is not an unusual event for our oil and gas customers, but what feels different about this time is no one knows when production will restart. Typically we have to ride out 60 to 90 days, and this one looks like six months or more.”

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