Dallas Fed Says Energy Growth Way Down, Chairman Calls for Pause In Fed Rate Hikes

January 3, 2019

 

While no surprise to the Texas energy sector, the Dallas Fed’s Thursday announcement that energy growth slowed significantly in the fourth quarter of 2018 came as a shock to some because of the extent of the drop.

Later in the day, the head of the Dallas fed said the Open Market Committee should put a temporary stop to rate hikes.

The Federal Reserve Bank of Dallas said in its quarterly report that its business activity index dropped from 43.3 in the third quarter own to a fourth-quarter 2.3.

A “0.0” would mean no change from the previous quarter, so there was growth — just not much, with the biggest drop coming among production and exploration companies.

But for the first time since 2016, oil and gas companies’ look to the future — producers notably more optimistic than oil services companies — dropped 57 points, to a negative-10.2.

Overall, the Fed reported a plunge in optimism for 2019 across the board, with service firms’ employment index down by half to about 17, the hours-worked index also down by about half to 19.

However, the index for aggregate wages and benefits was up in the fourth quarter from 23 to 33.

Dallas Fed Chairman Robert Kaplan recommended Thursday afternoon — two weeks after the latest rate hike, with two more increases rumored for this year — that slowing growth and “sensitive” industries that are suffering (such as oil and gas) should spur the Fed to hit the pause button on rate hikes.

Kaplan doesn’t vote with the Open Market Committee, but his comments will likely have an effect on voting members.