As Texas Goes, So Goes the Nation

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Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--Recent data from shale-rich Texas on the health of its manufacturing sector and trends in the oil patch could be seen as a bellwether for the broader national sentiment.

While normally considered an oil state, Texas also boasts a strong manufacturing sector. The National Association of Manufacturers finds manufacturing accounts for about 13% of the state's economic output and 7% of the total workforce. And those are good paying jobs too, with the average annual salary at $90,000.

That sector, however, is on its back foot. The Federal Reserve Bank of Dallas reported in its monthly manufacturing survey that trends were slowing in the Texas economy. Its production index declined from July and other measures in the sector showed either a slowdown in growth or actual downturns.

"Markets are softening as inflationary policy is beginning to significantly affect end markets, driving down demand for basic materials," one respondent told the bank.

That may be a reflection of global economic trends as much as it is a growing sense of economic malaise in the U.S. economy. There have been two consecutive quarters of negative gross domestic product (GDP), the technical definition of a recession, and the U.S. economy is already in the grips of decade-high inflation.

Last week, U.S. Federal Reserve Chairman Jerome Powell said policy makers may have to press on the brakes so hard to curb inflation that many American households could suffer. That alone would be a sign of upcoming curbs in national demand and weakening sentiment.

Overseas, meanwhile, a slowdown in economic activity in China, driven by drought and pandemic restrictions, is curbing growth here in Texas and elsewhere. Without robust activity in China, the world's second-largest economy after the United States, there's not much that will clear some of the backlogs dragging on the broader market.

"Given the country's overriding importance to the global economy, potential water-driven disruptions beginning in China would rapidly reverberate through food, energy, and materials markets around the world and create economic and political turbulence for years to come," according to an analysis in the journal Foreign Affairs.

In the shale patch, meanwhile, the general outlook is positive, though there could be some headwinds developing there as well. The latest drilling productivity report from the U.S. Energy Information Administration finds total domestic shale oil production should increase by 1.5% from July levels to reach 9 million barrels per day, with most of that coming from the mighty Permian Basin. Shale gas production for August is expected to increase by around 0.7%. Both of the expected accelerations, however, are slower than during previous months.

We'll have to wait another month before the Dallas Fed examines the shale sector again here in Texas. But its second-quarter survey, published in June, showed oil and gas sector activity "expanded at a robust pace." And yet the same survey found that, of the 52 oilfield services firms responding, none of them reports lower costs. And delays in deliveries are at a record high, while availability of products may be approaching a record low.

On the flip side, analysis of federal data by the Texas Independent Producers & Royalty Owners Association finds jobs in the oil patch are actually accelerating.

We see similar trends in manufacturing. The Dallas Fed reported that 27% of the firms it surveyed were hiring and 12% were trimming payrolls. Overall hours worked increased as did some wages, but those wages aren't keeping pace with inflation.

Trends in Texas are following the national vibe. Texas was briefly a sovereign republic before it joined the rest of the U.S. states. And it still serves, some 200 years later, as a lone star that serves as a beacon for broader national economic trends.

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).