"We Are In A Recession": Dallas Fed Respondents Admit The U.S. Economy Is In Freefall

For those interested in hearing some horror stories from ground zero of America's recession, look no further than Texas, where the best recap of sentiment on the ground comes straight from the Dallas Fed respondents, who have not been this depressed since the Global Financial Crisis.

Here are some key examples, starting with the one that summarizes it best:

  • "We are in a recession. Oil prices are a symptom, not the cause."

Chemical Manufacturing

  • Last October we lost about 40 percent of our volume due to customer internal consolidations because of the weak economy. Most of the loss was due to product sourcing out of China. Our U.S.-based customer closed U.S. plants’ processing units and are buying from China sources, so it has no need for us to package its products for export around the globe. We have been granted new business that will come on board in March and April 2016. This will make up for some of the losses.
  • Don't know if it is the weather, uncertainty created by the presidential election, or just a slowdown in the world economy, but things are definitely slowing down. Volumes are down and new orders are quiet. Low energy prices are the saving grace keeping margins good.

Fabricated Metal Product Manufacturing

  • The refinery turnaround season has helped with new orders, but the general level of capital goods orders and prospects has decreased significantly. The summer season is the slowest, and we are expecting a very depressed market prior to the fall refinery turnaround season.
  • Our backlog has declined (50 percent less than the same time last year). We are receiving a very high volume of requests for proposals, but either are not winning them or the projects are on hold. Pricing to obtain any work has decreased for the benefit of the owner/contractor.
  • We’re seeing an uptick in trade training facilities and have been asked to accommodate intern students. We are willing to do this on a grant basis. Previously, training young people has been totally out of our pocket. The precision machining trade has been suffering for years as baby boomers have been retiring and no one is available to fill their positions. Advances in the machine trade help to compensate some, but new blood is sorely needed.
  • We are experiencing a severe downturn in our business, as the oil and gas exploration and production segment has significantly reduced their capital budgets for 2016 based on declines in the WTI price.
  • Sales bottomed out in February after weakening in January from fourth-quarter volumes. Feedback from customers indicates slower business conditions and a cautionary tightening of inventory levels. A key customer is moving additional production to China and to a large vertically integrated U.S. supplier, adversely impacting our sales after the first quarter. Additional staff reductions will be required.

Machinery Manufacturing

  • We are in a recession. Oil prices are a symptom, not the cause.
  • Our overall forecast is level; however, we should be on an increased path for volume and pressuring our manufacturing capacity. Due to the low price of oil, there is a direct impact on the overall forecast of increased sales and manufacturing. Other segments of industries such as aerospace and general manufacturing seem static. The end result is we believe the economy overall is not positive.
  • Low commodity prices within the energy industry are brutal. Further rounds of headcount reductions are being planned now after multiple waves of reductions in 2015. Trying to plan cash flow in this environment is nearly impossible, as producers continue to cut activity and demand steeper and steeper discounts on products and services. Failure rate of companies in the energy industry will start to ramp up materially in 2016.
  • Customers are becoming more cautious about investing in expansion than they were this time a year ago.
  • There is continued weakness in oil- and gas-related equipment manufacturing. We anticipate improvement in the second half of the year, but no change in wages.
  • It's a tough time in the oil patch. We plan on cutting 20 percent of staff this month after cutting 25 percent a year ago. We are not sure how we can sustain our skill sets with these dramatic troughs.

Transportation Equipment Manufacturing

  • Our business is heavily tied to the health of the Texas economy. Depending on the fallout from the energy sector, our six-month projections may turn negative. If we are able to quickly move into an emerging market, even if the broader Texas outlook turns negative, this may act as a mitigating factor for our business. The coming year does represent the least confidence we've had in knowing where conditions were heading since 2010.
  • Our business is seasonal, and we generally see an uptick in the spring. With the relatively mild winter this year we may be seeing the spring uptick early. So we remain cautious about our usual spring surge.

Printing and Related Support Activities

  • We made heavy investments in new equipment and new capabilities over the last three years, and finally the nationwide salesforce is feeding this plant new business opportunities at a rate I've not seen in my 10 years here. Plus our largest customer went out to bid for the umpteenth time and for the first time, all of the competitors raised prices, and a bunch of business came back our way. I am more optimistic about the future for this plant than I've been in a while.
  • Qualified candidates for machine operator positions are very difficult to fill. The lack of workers is limiting production in this manufacturing business.
  • We cannot figure out why it is so slow right now, other than we are indirectly impacted by the downturn in energy. We are four months into our fiscal year and are behind 21 percent compared with last year on incoming orders, and last fiscal year was a down year!

Source: Dallas Fed