U.S. Energy Companies, Manufacturing, Take on the Chin

A leading economic indicator suggesting Texas’s economy is suffering an aggravated decline on the falling price of oil left most investors undeterred from staying with U.S. stocks.  The monthly Texas Manufacturing Outlook Survey showed a sudden and unexpected decline in activity, falling to a sharp contraction because of weak demand.

A leading economic indicator suggesting Texas’s economy is suffering an aggravated decline on the falling price of oil left most investors undeterred from staying with U.S. stocks.  The monthly Texas Manufacturing Outlook Survey showed a sudden and unexpected decline in activity, falling to a sharp contraction because of weak demand. “Texas factory activity fell sharply in January,” the Federal Reserve Bank of Dallas said, pointing to a production index that fell 23 points from 12.7 to -10.2, indicating output went negative both in December and in the last quarter of 2015.

The Federal Reserve also saw the new orders index fall to -9.2, the growth rate of orders fell to -17.5, and capacity utilization went from positive to -7, while shipments also fell to -11. “The survey’s demand measures—the new orders index and the growth rate of orders index—led the falloff in production with negative readings last month, and these indexes pushed further negative in January,” the Federal Reserve said about the results.

Weak Labor, Prices

Labor also contracted, with the employment index falling to -4.2 as 21 percent of surveyed firms reported net layoffs. Those who are working may find the amount of hours of work available is falling, as the hours worked index “plummeted” 23 points to -9.2, “suggesting a sharp pullback in employee hours,” as the Fed put it.  While the weakness in labor is new, a fall in prices is not—measures of finished goods prices remained negative for over a year, but moved upwards from -15.5 to -9.6.

Prices for finished goods are not the only thing rising; the study also saw wages and benefits rising, as that index rose at 16.5, but below the 20.2 level of the previous month. That, combined with the reduced number of working hours and the decline in available jobs, may indicate weakening demand for work, weakening bargaining power amongst workers, and weakening future expectations for the Texas economy.

“Unsurprising”

The results were “unsurprising” according to one equities and derivatives broker-dealer, who added that the economic indicator was largely immaterial to investors who were driven to buy shares on Monday due to hints of monetary policy actions in Asia that could stimulate demand for equities around the world.

That did not stop the markets from posting modest losses on Monday, although the relatively low decline is mild compared to the relatively steeper falls in equity prices throughout January.

Nonetheless, energy companies continued to post losses, with Chevron, Royal Dutch Shell, BP, Total, and ConcoPhillips on the decline. The fall was largely a result of another downturn for oil, as WTI futures fell after spiking late last week. By the end of yesterday’s trading, oil was pressuring a $30 resistance level after reaching above that price point on Friday thanks to a surprise 22 percent intraday price surge.