Special Questions

Texas Manufacturing Outlook Survey

Data were collected November 14–22, and 95 Texas manufacturers responded to the survey.

NOTE: 95 responses.

*This answer choice was not asked in the July ’21 survey.
NOTES: 77 responses. This question was posed only to those passing at least some of the higher costs on to customers.

NOTES: 91 responses. This question was posed only to those having increasing costs.

NOTE: 95 responses.

NOTE: 95 responses.

Special Questions Comments

These comments have been edited for publication.

• Operating margins are lower than pre-COVID. We have some pricing power on some products but not on all products (we’re a price taker on more commodity products).

• Hold [interest] rates steady for a while … please do not be too hasty to raise rates again.

• It is difficult to raise prices in certain markets due to the onslaught of imports from other countries.

• We are bringing on much needed capacity for the long term, which will pressure operating margins in the near term (the next few years).
• Our operating margin increased over the last six months because we were able to pass on higher pricing to customers. Prior to that, rapidly changing pricing flipped our margin negative until we could renegotiate pricing, so the company is now again profitable but was negative for a period of time. In short, the increased operating margin was essential because the other path was unsustainable. The [higher margin] does not reflect that the company raised its prices and increased its profits, but rather that once prices were able to increase, the company was finally able to return to normal operating margins not seen since COVID restrictions were put in place.

Texas Service Sector Outlook Survey

Data were collected November 14–22, and 302 Texas business executives responded to the survey.

NOTE: 302 responses.

*This answer choice was not asked in the July ’21 survey.
NOTES: 181 responses. This question was posed only to those passing at least some of the higher costs on to customers.

NOTES: 269 responses. This question was posed only to those having increasing costs.

NOTE: 300 responses.

NOTE: 301 responses.

Special Questions Comments

These comments have been edited for publication.

• Any increase in operating margin will be due to operational fixes, not market conditions.

• We are on a modest growth trajectory, with revenues growing faster than costs. We do not plan a general price increase but will make an inflationary adjustment in January that will capture some of the cost increases we have seen. We only make that adjustment once per year, so to date, we have not been able to pass on higher costs to our customers.

• As a venture-backed company, our costs include our cost of capital. While labor costs have increased, it is the rising cost of capital that is of most concern to us. Historically, we have been able to keep prices low for our customers, subsidizing them with outside financing as we scale. That is no longer a viable option given cost of capital and restricted access to capital in a high-rate environment. To shore up margin, we are increasing prices but do not anticipate having to increase prices again for a while.

• As loan demand decreases, competition for loans will increase. The cost of deposits is increasing, and with less liquidity available at banks, the market price for deposits is heating up.

• As an insurance agent, we pass through our costs via the premiums charged by the insurance companies. So that's something we don't control. What we do control is providing coverage options to help mitigate any premium increases that our customers need help to pay.

• Workers are holding us hostage for higher wages to combat the inflation they are experiencing and because they know the labor market is tight. Meanwhile, our revenues are tied to a fixed percentage of the rental revenue we can generate. Right now, we are having to decrease rents to maintain occupancy and generate what revenue we can. Profits are eroding, and our ability to grow is being impaired.

• [We are] proactively raising prices based on rising costs and including additional services to add value.
• Many of our contracts are government fixed-priced contracts awarded prior to the current rate adjustments. There is no contractual method to adjust for inflation or upward rate adjustments. The business is contractually bound for the period of the contract.
• For professional services, firm owners and high-level managers are working harder and longer in order to pick up slack due to a drop in remote work productivity, increased training and quality assurance efforts. They are also facilitating child/elderly care demands.

• We were unable to capture [recover] much of the increased costs earlier this year. We had to honor our contracts. We are getting better at building in the increases now.
• Replacement costs for nondestructive testing inspection equipment are our most significant driver of increased costs. Again, the vendors blame the chipmakers, and the chipmakers blame COVID, which leads to six months-plus lead times and two times the price for the same unit. The second-highest driver is the cost of chemicals from our suppliers, which has tripled in the last year, and we do not see an end to either of these issues.

• In health care, the issue is declining reimbursement from the payers, combined with wage inflation. We also are dealing with employee shortages.
• As a health care provider, we are at the mercy of the insurance companies and have not had a pricing increase in years, while our costs for supplies and labor have increased more than 20 percent.

• Because sales are up slightly, it is very difficult to pass on the increases in our costs, which are coming across the board in every category. We can do this for a time, but something will have to give in the form of reduced capital expenditures and perhaps dialing back wages as the worst-case scenario.

• Employees’ commission plans have been lowered to reduce labor expenses.

Texas Retail Outlook Survey

Data were collected November 14–22, and 65 Texas retailers responded to the survey.

NOTE: 65 responses.

*This answer choice was not asked in the July ’21 survey.
NOTES: 49 responses. This question was posed only to those passing at least some of the higher costs on to customers.

NOTES: 61 responses. This question was posed only to those having increasing costs.

NOTE: 65 responses.

NOTE: 65 responses.

Special Questions Comments

These comments have been edited for publication.

• We are cost-plus, so as input costs rise, our margins get squeezed. We try to claw back some of the lost margin, but there is real resistance to any additional price increases.

• We see continuing revenue growth through the first half of 2023, but margin pressures will reduce profitability by a couple of points.
• As supply increases in 2023, our margins will decrease. Current high margins are strictly a result of product shortage.

• You [the Federal Reserve] are moving too fast too late.

• Pharmacies continue to discover new avenues to penetrate the health care space, which seems to be governed by pharmacy benefit managers and large conglomerates. By either handling the low-margin, volume-based retail prescriptions, which allow the pharmacy to stay in the "middle of the pack" unnoticed, or finding a niche in a specialty division, independent pharmacies are attempting to fight back by highlighting service and convenience. Due to the success of some of the independent pharmacies, they become targets for "random" audits by pharmacy benefit managers, lose major contracts (which pushes them out of competition) or are forced to transfer prescriptions to pharmacy benefit-manager-owned pharmacies.

• We are doing the best we can to increase our prices to cover increased expenses.