Texas Economic Conditions Improve as Price Pressures Build
Economic conditions in Texas have improved, with the Texas Business Outlook Surveys in February showing a pickup in growth after a deceleration in January. Additionally, staffing and Texas mobility and engagement have surpassed levels reached prior to a mid-February freeze and electric grid collapse that afflicted most of the state.
Meanwhile, price pressures continue to build in the manufacturing and retail sectors, partly due to supply-chain disruptions.
Recent Texas Economic Activity
Texas Business Outlook Surveys for February show a pickup in output expansion. The Texas manufacturing sector reclaimed the solid growth path exhibited during the second half of 2020, as the manufacturing production index jumped to 19.9 from 4.6. The index is calculated by subtracting the percentage of respondents reporting a decrease in activity from the percentage reporting an increase, with a reading above 0 indicating expansion.
Service sector revenue growth resumed but remained muted, with the index edging up from 0.8 to 2.6, a reading well below average. Retail activity remained depressed, with the sales index holding near zero (Chart 1). Business outlooks improved, particularly among manufacturers.
Limited Impact from Texas Deep Freeze, Grid Collapse
The extent to which there is long-term economic disruption from the freeze and grid collapse depends on how much activity was disrupted and for how long. While activity dropped sharply the week of the storm in February, it bounced back the following week. Thus, the negative impact on employment and business activity appears to have been mostly transitory.
The rebound is evident in weekly staffing data and Texas mobility and engagement, which surpassed pre-storm levels in March (Chart 2). Simultaneously, the impact of COVID-19 diminished as hospitalization rates in mid-March fell almost 70 percent from high levels in mid-January.
High-frequency indicators and other recent data points also suggest improving economic conditions in Texas:
- Hours worked in small businesses rose to their highest level since late December.
- Dining out increased to its highest level since mid-March 2020.
- Oil prices increased and reached levels not seen since mid-2019.
- The Texas rig count steadily rose, continuing a trend that began in fall 2020.
Even though the winter weather event cost jobs in February, recovery and reconstruction will boost growth over the next few months. The most recent weekly estimate of Texas employment suggests that employment rose for the second week in a row after declining in the week of the February winter storm. Higher-than-expected employment gains are anticipated in March and April, and our 2021 Texas employment forecast remains unchanged at 6.5 percent.
January employment grew at a 3.8 percent annualized rate, which is robust but below the downwardly revised rate of 6.2 percent in December. January employment across major Texas metros was mixed. It increased 5.5 percent in Austin and 3.3 percent in Dallas but fell 4.1 percent in San Antonio, 3.2 percent in Fort Worth and 1.9 percent in Houston.
Meanwhile, the Texas housing market remains strong, with home sales and building permits at very high levels. Home price appreciation has accelerated, and the homebuilding pipeline remains full amid strong demand.
Persistent Price Pressures Reported
Price pressures continue to mount in manufacturing, according to the Texas Business Outlook Surveys. The Texas Manufacturing Outlook Survey’s raw materials prices index edged up to a 10-year high amid widespread reports of supply-chain disruptions driving up input costs. Retailers also experienced significant price pressures, as the Texas Retail Outlook Survey selling prices index reached an all-time high since the survey’s inception in 2007.
Responding to Texas Business Outlook Surveys’ special questions, 36 percent of respondents said they are experiencing supply-chain disruptions. Among those, 71 percent said the disruptions are increasing operating costs, but only 44 percent reported that they’re able to pass on some of those higher costs to consumers (Chart 3).
Manufacturers are the most affected, with 80 percent saying supply-chain disruptions have boosted operating costs and only 47 percent reporting that they’re able to increase prices. Among the 62 percent of retailers who said supply-chain disruptions increased their operating costs, 81 percent said they are increasing prices.
About the Authors
The views expressed are those of the authors and should not be attributed to the Federal Reserve Bank of Dallas or the Federal Reserve System.