According to the Dallas Federal Reserve’s monthly Texas Manufacturing Outlook Survey, activity at Texas factories expanded in March. But the report also indicated that the production index, a key measure of state manufacturing conditions, fell 15 points – the sixth biggest drop since 2004. So what does this mean for the state and its manufacturing industry?

Ed Egan, a Baker Institute fellow and director of the institute’s McNair Center for Entrepreneurship and Innovation, says a drop of this magnitude is almost unprecedented outside of a recession.

“If it were to repeat these falls again next month, which we obviously hope it doesn’t, then we would have a negative outlook and we would be looking at a potential recession in manufacturing here in Texas,” Egan said.

He says industry leaders are also concerned about the impact of the Trump administration’s new steel and aluminum tariffs.

“They all said that the effects had only just started but were material,” he says. “Another drop is likely. If it’s as big as this one, that really would be problematic.”

Egan says it’s very clear that the tariffs caused the drop.

“This is a sector that has been recovering since 2016. It’s been doing okay but not fantastically well. If it takes a blow now, it’s not particularly stable. It’s not likely to do very well,” he says. “We would see thousands of layoffs.”

Written by Angela Bonilla.

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