Surveys

Special Questions

February 27, 2023

Special Questions

For this month’s survey, Texas business executives were asked supplemental questions on operating margins and expected demand. Results below include responses from participants of all three surveys: Texas Manufacturing Outlook Survey, Texas Service Sector Outlook Survey and Texas Retail Outlook Survey.

Texas Business Outlook Surveys

Data were collected February 14–22, and 405 Texas business executives responded to the surveys.

1. How has your firm’s operating margin, defined as earnings before interest and taxes (EBIT) as a share of total revenue, changed over the past six months?

	Dec. '18 (percent)	May '19 (percent)	Dec. '21 (percent)	Nov. '22 (percent)	Feb. '23 (percent
Increased substantially	7.2	6.2	9.9	3.5	5.5
Increased slightly	23.1	22.9	32.2	21.8	24.5
Remained the same	24.4	29.1	18.3	25.3	23.3
Decreased slightly	34.2	33.6	25.7	34.4	32.0
Decreased substantially	11.1	8.2	13.9	14.9	14.8

NOTE: 400 responses.

2. How do you expect your firm’s operating margin, defined as earnings before interest and taxes (EBIT) as a share of total revenue, to change over the next six months?

	Nov. '22 (percent)	Feb. '23 (percent)
Increase substantially	4.3	5.0
Increase slightly	30.1	31.8
Remain the same	25.5	25.5
Decrease slightly	30.1	31.3
Decrease substantially	10.1	6.5

NOTE: 400 responses.

3. How do you expect demand for your firm’s goods and/or services this year to compare with 2022?

	Feb. '23 (percent)
Increase substantially	8.0
Increase slightly	34.7
Remain the same	30.4
Decrease slightly	20.4
Decrease substantially	6.5

NOTE: 401 responses.

3a. When do you expect the stronger increase in demand?

	Feb. '23 (percent)
First half 2023	34.7
Second half 2023	65.3

NOTES: 170 responses. This question was only posed to those expecting an increase in demand this year.

3b. When do you expect the stronger decrease in demand?

	Feb. '23 (percent)
First half 2023	44.1
Second half 2023	55.9

NOTES: 102 responses. This question was only posed to those expecting a decrease in demand this year.

Survey respondents were given the opportunity to provide comments, which can be found on in the Comments tab above.

Texas Manufacturing Outlook Survey

Data were collected February 14–22, and 100 Texas manufacturers responded to the survey.

1. How has your firm’s operating margin, defined as earnings before interest and taxes (EBIT) as a share of total revenue, changed over the past six months?

	Dec. '18 (percent)	May '19 (percent)	Dec. '21 (percent)	Nov. '22 (percent)	Feb. '23 (percent
Increased substantially	11.1	11.4	4.6	5.3	10.1
Increased slightly	24.2	23.8	26.4	14.7	20.2
Remained the same	17.2	22.9	19.5	20.0	21.2
Decreased slightly	35.4	33.3	25.3	38.9	30.3
Decreased substantially	12.1	8.6	24.1	21.1	18.2

NOTE: 99 responses.

2. How do you expect your firm’s operating margin, defined as earnings before interest and taxes (EBIT) as a share of total revenue, to change over the next six months?

	Nov. '22 (percent)	Feb. '23 (percent)
Increase substantially	5.3	3.0
Increase slightly	32.6	37.0
Remain the same	20.0	21.0
Decrease slightly	28.4	31.0
Decrease substantially	13.7	8.0

NOTE: 100 responses.

3. How do you expect demand for your firm’s goods and/or services this year to compare with 2022?

	Feb. '23 (percent)
Increase substantially	11.0
Increase slightly	30.0
Remain the same	28.0
Decrease slightly	17.0
Decrease substantially	14.0

NOTE: 100 responses.

3a. When do you expect the stronger increase in demand?

	Feb. '23 (percent)
First half 2023	41.0
Second half 2023	59.0

NOTES: 39 responses. This question was only posed to those expecting an increase in demand this year.

3b. When do you expect the stronger decrease in demand?

	Feb. '23 (percent)
First half 2023	56.7
Second half 2023	43.3

NOTES: 30 responses. This question was only posed to those expecting a decrease in demand this year.

Texas Service Sector Outlook Survey

Data were collected February 14–22, and 305 Texas business executives responded to the survey.

1. How has your firm’s operating margin, defined as earnings before interest and taxes (EBIT) as a share of total revenue, changed over the past six months?

	Dec. '18 (percent)	May '19 (percent)	Dec. '21 (percent)	Nov. '22 (percent)	Feb. '23 (percent
Increased substantially	5.3	4.0	11.9	3.0	4.0
Increased slightly	22.6	22.5	34.3	24.0	25.9
Remained the same	27.9	31.7	17.8	27.0	23.9
Decreased slightly	33.7	33.7	25.8	33.0	32.6
Decreased substantially	10.6	8.0	10.2	13.0	13.6

NOTE: 301 responses.

2. How do you expect your firm’s operating margin, defined as earnings before interest and taxes (EBIT) as a share of total revenue, to change over the next six months?

	Nov. '22 (percent)	Feb. '23 (percent)
Increase substantially	4.0	5.7
Increase slightly	29.2	30.0
Remain the same	27.2	27.0
Decrease slightly	30.6	31.3
Decrease substantially	9.0	6.0

NOTE: 300 responses.

3. How do you expect demand for your firm’s goods and/or services this year to compare with 2022?

	Feb. '23 (percent)
Increase substantially	7.0
Increase slightly	36.2
Remain the same	31.2
Decrease slightly	21.6
Decrease substantially	4.0

NOTE: 301 responses.

3a. When do you expect the stronger increase in demand?

	Feb. '23 (percent)
First half 2023	32.8
Second half 2023	67.2

NOTES: 131 responses. This question was only posed to those expecting an increase in demand this year.

3b. When do you expect the stronger decrease in demand?

	Feb. '23 (percent)
First half 2023	38.9
Second half 2023	61.1

NOTES: 72 responses. This question was only posed to those expecting a decrease in demand this year.

Texas Retail Outlook Survey

Data were collected February 14–22, and 68 Texas retailers responded to the survey.

1. How has your firm’s operating margin, defined as earnings before interest and taxes (EBIT) as a share of total revenue, changed over the past six months?

	Dec. '18 (percent)	May '19 (percent)	Dec. '21 (percent)	Nov. '22 (percent)	Feb. '23 (percent
Increased substantially	2.6	2.3	16.2	3.1	5.9
Increased slightly	10.3	15.9	32.4	13.8	22.1
Remained the same	23.1	27.3	21.6	21.5	17.6
Decreased slightly	41.0	43.2	21.6	47.7	38.2
Decreased substantially	23.1	11.4	8.1	13.8	16.2

NOTE: 68 responses.

2. How do you expect your firm’s operating margin, defined as earnings before interest and taxes (EBIT) as a share of total revenue, to change over the next six months?

	Nov. '22 (percent)	Feb. '23 (percent)
Increase substantially	0.0	4.4
Increase slightly	10.8	16.2
Remain the same	33.8	29.4
Decrease slightly	43.1	38.2
Decrease substantially	12.3	11.8

NOTE: 68 responses.

3. How do you expect demand for your firm’s goods and/or services this year to compare with 2022?

	Feb. '23 (percent)
Increase substantially	4.4
Increase slightly	23.5
Remain the same	39.7
Decrease slightly	29.4
Decrease substantially	2.9

NOTE: 68 responses.

3a. When do you expect the stronger increase in demand?

	Feb. '23 (percent)
First half 2023	31.6
Second half 2023	68.4

NOTES: 19 responses. This question was only posed to those expecting an increase in demand this year.

3b. When do you expect the stronger decrease in demand?

	Feb. '23 (percent)
First half 2023	36.4
Second half 2023	63.6

NOTES: 22 responses. This question was only posed to those expecting a decrease in demand this year.

Special Questions Comments

These comments have been edited for publication.

Texas Manufacturing Outlook Survey

Computer and electronic product manufacturing

We expect to see 20 percent sales growth this year based on the trend from last year. This is down from 50 percent growth each of the last two years.

Fabricated metal product manufacturing

America’s infrastructure is falling apart. My company provides material to build and repair water and wastewater systems. It [infrastructure] can’t be ignored.
Demand may defer well into 2024.
Although we are hoping for improvement [this year] over 2022, we will have to see more of our open bids become current production orders.

Food manufacturing

Irrational government policies at the federal level and instability add to the uncertain economic equation.

Machinery manufacturing

As people realize that fossil fuels are essential for modern economies, we should see increased investment. Politicians may claim that we will soon transition away from fossil fuels, but scientists and engineers do not.
It should be a good year. Our backlog is higher than expected. Supplier lead times remain a hurdle.
Demand will increase due to the fact that most of my competitors are having the same issues with lack of manpower.
We’ve vertically integrated our business and continue to do so. We will spend to buy new machines and get them operational as quickly as possible. The payback is typically 18 months, and [the integration] further adds to our ability to control our business and delivery ability to our customers. We hope to double our business over the next three years. This will take strict discipline and hiring new people with good work skills.

Primary metal manufacturing

Two factors [are affecting our business]—a drop in residential building and construction products, and foreign competition.

Printing and related support activities

Inventory realignment has caused a decrease in current orders as panic buying during the [worst of the] pandemic bloated inventories. As lead times have come down, customers feel better about reducing inventories.
We had projected an increase in sales compared to 2022. However, we are currently running 7 percent down on incoming orders through the 19th week of our fiscal year, so we need to ramp up soon to make up for this deficit.

Textile product mills

We do not see demand increasing the entire year.
Honestly, we are not sure about the exact timing, but we are expecting sales and demand to be down year over year.

Transportation equipment manufacturing

We expect 2023 to be down 10–12 percent.

Texas Service Sector Outlook Survey

Professional, scientific and technical services

It will require the first half of the year to build momentum with marketing initiatives to build increased sales.
We are concerned with increasing overhead to operate our business. Increased wage pressures, benefits and demand for work flexibility are cutting into profit margin big time.
Clients are also in a holding pattern and trying to maintain the status quo until some of the recession concerns subside, which means they limit spending levels for our services.
We are very optimistic about the overall U.S. economy by the last quarter of 2023.
We believe that employers are still having a hard time finding talent.
Higher interest rates make customers more cautious.
We do not expect the economy to get better until the fourth quarter. High cost of construction and labor combined with high property prices is not good for development, and the higher interest rates make it all but impossible for deals to work.

Administrative and support services

Clients are accepting the demand for talent is not going away, interest rates will remain higher, and inflation is slowly subsiding; reality is sinking in that this is what we're dealing with and that won't change. You have to have good employees to stay in business and make it grow.
Overall economic activity remains strong. [There is] slightly negative sentiment primarily due to current borrowing costs and continuing supply-chain issues.

Waste management and remediation services

Our company buys and sells commodities, so if the economy begins to gain strength, demand for our products will increase, as will prices. If the economy remains stagnant or weak, demand will follow accordingly. What we're also seeing is how strong a ripple effect the housing market has on the overall economy.

Ambulatory health care services

With dropping in-network insurance participation comes a percentage of the insured patients choosing to leave for an in-network provider and lower patient cost. We expect new-patient inflow to have replaced those who have left by the end of 2023, with the biggest negative impact [being] in the first half and seeing increased demand sometime in the second half of 2023.

Performing arts, spectator sports and related industries

The COVID-related uptick from last year is caught up. Inflation is a killer.

Real estate

As things get tighter, the demand for experienced, professional management increases. This will be an opportunity for us to grow, albeit at reduced margins.

Rental and leasing services

I am surprised that our sales activity on whole goods has continued to be very active; we are not noticing a slowdown. December 2022 was a disappointment, but January picked right back up like most of last year. We finished last year just short of a half-billion [dollars] in sales —up 25 percent from 2021.

Publishing industries (except internet)

We anticipate demand in our consumer-exposed segments to decrease slightly, although we anticipate demand in our business-to-business segments to increase slightly—resulting in no net change. We observe that some parts of the economy continue to struggle with inflation, rate fluctuations and supply-chain issues, but others are poised to perform to expectations. We are diversifying our customer base to capture more revenue that is not as exposed to consumer spending.

Truck transportation

As freight slows down, more independent truck drivers will keep their older trucks, which will need more repairs.

Credit intermediation and related activities

We are scrambling as fast as we can to create and market new services.
This [state of the economy] is a best guess and depends on several factors relating to the local and global economy: increasing government regulatory burden, continued political turmoil in Washington and the outcome of the war in Ukraine.

Securities, commodity contracts, and other financial investments and related activities

Some transaction growth is expected due to market conditions, but additionally [we are] anticipating transaction growth to be added through our staff additions.

Texas Retail Outlook Survey

Health and personal care stores

As organizations expand, the quantity of clientele should increase. Our service, brand and costs are highly competitive, and we believe that curiosity mixed with dissatisfaction with current relationships will increase demand for our goods and services.

Electronics and appliance stores

Manufacturers will start to suffer as their costs cannot be controlled.
We are heavily dependent on residential new construction, and it is off [down] more than 40 percent.

Motor vehicle and parts dealers

As the Federal Reserve increases rates, the purchase of new and used vehicles will drop.

Merchant wholesalers, nondurable goods

It's difficult for us to forecast demand for our services. We export to U.S.-branded restaurants in Latin America. A strong dollar and/or high cost of U.S. goods due to inflation encourage those export customers to seek local suppliers in their country or region. Conversely, when U.S. prices are stable or modestly increasing and the dollar is weak, we see increased demand for our services. However, we also see increased demand for U.S. products and brands in Latin America, so that demand tends to mask some of the problems created by a strong dollar or inflationary costs in the U.S.
We are now having to pay a huge debt owed to the government for the pleasure of fighting to stay in business when they closed us down [at the height of the pandemic].

Merchant wholesalers, durable goods

We feel that there could be a slowing of demand toward the latter half of 2023, driven mainly by a decrease in lower-priced homebuilding (homes [priced] less than $250,000). This could be offset by general migration to North, Central and South Texas.

Food services and drinking places

Customer demand is stronger than last year; however, we expect our price increases to dampen demand especially if there is a recession.

Questions regarding the Texas Business Outlook Surveys can be addressed to Emily Kerr at emily.kerr@dal.frb.org.