Texas manufacturing sees rebound
Manufacturing, after two months of contraction, began expanding again in June after plants that shut down in the spring reopened and demand for products increased as state and national economies took steps toward a tentative recovery.
Activity in the sector started to accelerate last month after improving in May, according to a survey of business executives by the Federal Reserve Bank of Dallas. The Dallas Fed’s production index, based on survey responses, moved into positive territory following negative readings in May and April.
The index rose to 13.6 from minus 28 last month. Negative readings indicate a contraction, while positive readings indicate an expansion.
Manufacturing’s rebound is another sign that an economic recovery appears to be taking root after the state lifted governmentmandated shutdowns of non-essential businesses to slow the spread of the coronavirus. The recent surge in cases in Texas and Houston, however, have created new uncertainty about the staying power of the rebound.
The recession caused by the coronavirus pandemic has already done enough damage to the local econo
my to expect at least a twoyear recovery, according to Bill Gilmer, an economist and director of the Institute for Regional Forecasting at the University of Houston. In an essay published Monday, Gilmer wrote that Houston’s economic downturn will likely extend through first quarter of 2021, and the local economy is unlikely to fully recover all the jobs lost in the crisis until the second quarter of 2022.
Gilmer’s analysis emphasized to the importance of the oil industry to the region’s economy. He expects oil prices to average about $40 per barrel through the third quarter of 2021, a price at which few companies can earn profits and fewer still can grow. If oil prices return to between $60 and $65 per barrel in the second half of 2022, then Houston’s economy will follow, recovering jobs lost in in this recession, Gilmer wrote.
Oil settled Monday in
New York at $39.70 a barrel, up $1.21 or about 3 percent.
Local manufacturers are likely to be heavily affected by the energy industry’s recovery. More than a quarter of local manufacturers’ businesses are are tied to the oil and gas industry, according to the Greater Houston Partnership.
As coronavirus cases spike in the region, the future for local manufacturers is still fraught. The Dallas Fed manufacturing survey’s uncertainty index was 9.1 last month — positive readings indicate increased uncertainty among businesses. But it was the lowest indicator of uncertainty since January.
Emily Kerr, an economist at the Dallas Fed, noted that several survey respondents expressed concern for the upward trend in new COVID-19 cases in Texas. Still, she said, "A majority of manufacturers expect higher demand and output six months from now."