Dallas Morning News Reports Texas Factory Output Declines, Outlook Worsens

10:48 AM CST on Monday, December 29, 2008

By SHERYL JEAN / The Dallas Morning News
sjean@dallasnews.com

Texas’ factory output worsened in December, and manufacturers’ six-month outlook remains weak, according to a survey released Monday by the Federal Reserve Bank of Dallas.

Most of the 109 companies surveyed from Dec. 16 to 23 reported a decline in capital expenditures planned for 2009 as the national economy is expected to remain weak. The company outlook index dropped to its lowest level since the monthly survey began in June 2004.
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Nearly all indexes of current activity remained negative, and several dropped to record lows. Indexes for new order volumes and capacity utilization “fell precipitously,” with survey respondents reporting declines by more than 5-to-1 of those reporting increases. Indexes for production, growth rate of orders and shipment volumes declined, reflecting sluggish demand.

Overall, more than 60 percent of the respondents reported worsening conditions. Sixty-five percent planned to reduce their capital budgets for 2009 vs. 14 percent who anticipated spending increases.

The capital spending results are more pessimistic than when such questions were asked in October 2007, when 29 percent of respondents reported declines in planned capital spending and 37 percent indicated increases.

This time, nearly 75 percent cited slow sales growth and 43 percent said low capacity utilization kept them from investing in new plant and equipment. Other factors were: Limited need to replace capital goods (38 percent), deteriorating cash flow (26 percent), limited need to replace IT equipment (25 percent) and the rising cost and lack of available credit (17 percent).

Other key findings included:

• 31 percent reported staff reductions.
• 38 percent indicated declines in work hours.
• The indexes for prices paid for raw materials and prices received for finished goods fell for the sixth straight month, registering record lows.
• Manufacturers were twice as likely to expect declines rather than increases in finished goods prices over the next six months.
• Although indexes for future production, capacity utilization, new order volumes and shipment volumes improved slightly, they are still close to record lows.

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