Tariff Uncertainty Casts Doubt Over Texas Manufacturers' Capital Spending Plans

Tariff-driven uncertainty is forcing Texas manufacturers to reduce capital spending and delay long-term projects, according to a Federal Reserve Bank of Dallas survey released Monday.More than 40% of firms surveyed said tariffs had increased uncertainty concerning their business decisions and outlook.That’s down from 65% when the bank last posed the question to manufacturers in September 2018. But it’s still significant, said Emily Kerr, senior business economist at the Dallas Fed.“Tariffs are certainly a factor that’s driving up uncertainty and now we have explicit proof of that,” Kerr said, based on the Fed’s survey of 115 manufacturing firms in mid-June.The effects of uncertainty -- reduced customer demand, delayed projects and lower capital spending -- could mean weaker manufacturing employment.“It’s difficult to justify hiring for the future if you’re more and more uncertain about whether it’s going to be positive,” Kerr said.The state’s unemployment rate checked in at a record low of 3.5% in May, but manufacturing employment fell 0.7 percent. Overall, the sector has added about 4,000 jobs statewide this year.Manufacturers said U.S. and foreign tariffs will negatively impact them in the long term.Almost a third of firms surveyed said duties implemented since 2018 would hurt their bottom line over the next two years. Thirty percent said future costs are unclear, while 21% don’t expect to be impacted. Eighteen percent of firms said the tariffs will give them a boost.This year, 45% of firms said tariffs aren’t affecting them. Another 41% said tariffs implemented since 2018 are hurting their bottom line. Nine percent said effects are unclear in the short term, while 9% said tariffs are good for business.Firms are doing their best to soften the short-term effects of tariffs. They reported passing cost increases on to customers, finding suppliers within the U.S. and performing some processes in-house.Manufacturing output in Texas was $226 billion in 2017, or more than 13% of the state’s gross domestic product, according to the National Association of Manufacturers. Firms in the field employ about 7% of the workforce. Average compensation was just over $85,000. In North Texas, the manufacturing sector includes such giants as Lockheed Martin’s F-35 assembly plant in Fort Worth and GM’s Arlington truck and SUV factory to Dynacraft’s truck component production facility in McKinney. The production index, the leading measure of Texas manufacturing conditions, rose to 8.9. That’s up slightly from 6.3 in May.  Continue reading...