Remember last summer when signs began emerging that the worst was over for the manufacturing sector in the Dallas area? Well, those green shoots have been stomped to smithereens. In the latest read on manufacturing activity from the Dallas Fed for January, the current conditions index dropped from an already low level of -21.6 down to -34.6. That’s the lowest reading for the headline index going all the way back to April 2009. Making matters worse, economists were actually looking for the headline index to improve to -14. In what looks like a case of economists being as bad at predicting the Dallas Fed report as they have been at gauging the Empire Manufacturing report, this was the second big miss relative to expectations in a row. In addition to the current conditions index of the Dallas Fed report, expectations dropped even further falling from -2.2 down to -24. That’s the lowest level for this index since February 2009.
As one might expect given the poor headline reading, the internals of this month’s Dallas Fed report saw steep drops as well. As shown in the table below, of the sixteen subcomponents to the headline index, only four increased, while 12 declined. Among the biggest decliners were Hours Worked, Production, Shipments, Capacity Utilization, and Employment. In terms of the six-month outlook, breadth was even worse with just two components (Delivery Time and New Order Growth) increasing. Obviously, Dallas, more than any other region of the country, has heavy exposure to the energy sector, so until oil prices stabilize, don’t expect things to get much better here. If you think it’s bad in Texas, though, just imagine how bad things are for any country where energy is the primary industry and driver of government revenues.