Texas manufacturing picks up again, but pall over sector remains

Factory activity in Texas again showed signs of improvement in November, according to a monthly Federal Reserve Bank of Dallas survey of manufacturers across the state.

That’s the third straight month of positive results for a sector that was hammered in early 2015 as the oil and gas industry retreated.

Progress has been slow — the survey data shows that the Fed’s production index, which measures the health of Texas manufacturing based on responses from dozens of executives, only moved up from 4.8 in October to 5.2 in November. But factories across the state have seen a significant recovery in business over the last seven months — in May the index dropped to a six-year low, but since then has swung up 19 points.

The Fed devises the index from the number of executives reporting increases in production versus those reporting decreases — in November, 28.8 percent of the respondents said they saw production picking up, the most since Dec. 2014. The index for new employment also spiked at 11.6, the highest that number has been since Aug. 2014. Nearly a quarter of the firms saying they had net hiring last month, bring on employees to handle an increasing workload.

But most of the executives still said new orders for their factories were either negative or flat, and a majority indicated that general business activity across the state remained gloomy.

Comments from executives on the survey clearly showed mixed reactions to the last month of activity, with some saying they were more optimistic about being able to grow while others noted that business conditions haven’t been this bad in years.

“We are having layoffs at five of our six facilities, and our backlog of work has dropped by 65 percent,” an executive for a fabricated metal product manufacturer said. “The strength of the U.S. dollar continues to drive buyers to seek equipment overseas. Business conditions for us are the worst we have seen them in 15 years.”

Fewer executives commented on the impact of the oil and gas bust on their businesses, but several still noted weakness in orders from that sector. One executive with a machinery manufacturer said that the slump in offshore oil activity hadn’t hurt business as much as expected, but that activity in 2016 was still uncertain.

“The market still expects a large drop-off in the off-shore oil industry. It is bizarre — for the three months (August, September and October) we had a stellar amount of bookings, higher than last year’s run rate. People say that our business is going to fall off, but our bookings don’t show that,” the executive said. “We’re running at a rate that we expected for the year. We have no clear idea of how 2016 will play out.”