The recovery in the Texas manufacturing sector has hit a speed bump, with recent growth in output slowing to its lowest rate since factories in the state first began ramping back up last summer after the initial economic shock of the coronavirus pandemic.
A key barometer of manufacturing activity devised by the Federal Reserve Bank of Dallas — called the state production index — continues to reflect expansion in January, but well off the rate in December and the average rate in the eight months since the rebound began.
Output is expanding “but at a markedly slower pace,” with “production and demand growth decelerating sharply from December,” Dallas Fed senior business economist Emily Kerr said in a written statement.
A number of Texas manufacturing executives who participated in the Dallas Fed’s latest sector survey, which the agency uses to compile the production index, cited ongoing uncertainty regarding the pandemic and the vaccine rollout as curbs on operations, as well as political uncertainty related to the changing administration in Washington.
The production index registered 4.6 this month, compared to 26.8 in December and a monthly average of about 17 since the recovery began in June.
Positive readings indicate expansion, while negative readings indicate contraction.
In April, the index plummeted to negative 54.9, its lowest point since compilation of the data began in 2004, including during the last recession from 2007 to 2009. It came in at negative 35.2 in March — when the pandemic first slammed the state’s economy — and at negative 26.9 in May, before turning positive.
“The political unrest in both the (United States) and abroad has put some damper on the overall outlook, with unknowns regarding policy changes that may or may not impact our industry directly or indirectly,” one executive of a chemical manufacturer told the Dallas Fed in the January anonymous survey.
Another respondent told the Dallas Fed that “stability in all areas” is needed, “including government, improvements in vaccine (distribution) for reduction in COVID cases, and the reopening of communities.”
Others warned that both they and their customers are continuing to grapple with pandemic-related problems, making it tough to forecast demand and manage supply chains.
Potential new policies from the administration of President Joe Biden, who was sworn in last week, has added to the unpredictability, some said.
“We are facing rising materials costs, rising logistics costs, longer lead times and still-uncertain policy changes with a new administration and new security and political threats each day,” an executive of an electronics manufacturer said.
Still, some voiced optimism.
“We are anticipating better business opportunities in the coming six to 12 months,” a respondent who works for a machinery manufacturer told the Dallas Fed.
“This typically happens when the past year has been restrictive on industry spending and growth,” the executive said. “Also, with the new outlook and hopes with a new government, we believe that the outlook could be very favorable for spending.”
Bob Sechler, Austin American-Statesman (TNS)