“Oil companies are all now in survival mode, from the smallest to the largest,” a machinery manufacturing company said in an anonymous comment included in the survey. “That has really hurt our plans, from paying off debt to buying new equipment.” Manufacturing plummeted in Texas in April as the joint shocks of the coronavirus pandemic and a collapse in oil prices suppressed demand for the state’s products, according to a survey by the Federal Reserve Bank of Dallas.
The survey’s production index, a barometer for manufacturing conditions, dropped to minus 55.3 -- its lowest reading since the poll’s inception in 2004 -- from minus 35.3 in March.
Texas is home to the world’s biggest shale-oil field. The production of oil requires help from a variety of ancillary industries, including manufacturers who supply pipes, parts and transportation equipment. Oil prices have plunged amid a Saudi-Russia price war and a supply glut as the world economy weakens significantly.
The dire conditions led to 24% of firms reporting net layoffs and many companies reducing hours and wages for their employees. Other manufacturing measures were also negative, with new orders, capacity utilization, shipments and capital expenditures hitting historic lows. An index for wages and benefits was negative for the first time since the 2008 financial crisis.
“This shutdown is killing business,” a primary metal manufacturer said. “We will be lucky to survive.”
The Dallas Fed’s survey was conducted April 14-22 and included responses from 115 Texas manufacturers.
Companies’ outlooks for conditions were grim as well, with many saying it was difficult to know how long the virus impact would last, and how long oil prices would remain suppressed.
“We have no visibility on orders and sales demand more than 30 days out,” a chemical manufacturer commented. “It is a highly uncertain and depressed overall business environment.”
The Dallas Fed asked several special questions related to coronavirus for its business outlook surveys, which include the manufacturing poll, and ones on the service and retail sectors.
In aggregate, nearly 81% of 407 business executives in the Lone Star State said that the virus has negatively impacted production, revenue and sales. Some 59% of leaders said their firms were fully operational, while 33% saying they were temporarily shut down.