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Texas Service Sector Activity Strengthens Further

Texas Service Sector Outlook Survey

Report in PDF

November 28, 2017

Texas Service Sector Activity Strengthens Further

What's New This Month

For this month’s survey, Texas business executives were asked supplemental questions on employment expectations and the labor market. Results for these questions from the Texas Manufacturing Outlook Survey (TMOS), Texas Service Sector Outlook Survey (TSSOS) and Texas Retail Outlook Survey (TROS) have been released together. Read the Special Questions results.

Texas service sector activity increased again in November, according to business executives responding to the Texas Service Sector Outlook Survey. The revenue index, a key measure of state service sector conditions, rose from 19.2 in October to 24.4 in November, reaching its highest reading since November 2014.

Labor market indicators reflected faster employment growth and longer workweeks this month. The employment index rose slightly from 8.3 to 9.8. The hours worked index was unchanged at 7.9.

Perceptions of broader economic conditions continued to reflect optimism in November. The general business activity index edged up two points to 20.4. The company outlook index dipped to 14.2, with 23 percent of respondents reporting that their outlook improved from last month and 9 percent noting it worsened.

Price pressures eased while wage pressures increased this month. The selling prices index moved down three points to 7.2. The wages and benefits index rose slightly from 16.9 to 19.1, although the majority of firms continued to note no change in compensation costs.

Respondents’ expectations regarding future business conditions continued to reflect optimism in November. The index of future general business activity edged up from 30.5 to 33.0. The index of future company outlook held steady at 32.0. Indexes of future service sector activity, such as future revenue and employment, reflected slightly more optimism this month.

Texas Retail Outlook Survey

November 28, 2017

Retail Sales Pick Up

Retail sales climbed in November, according to business executives responding to the Texas Retail Outlook Survey. The sales index jumped from 17.7 in October to 30.4 in November. Inventories increased at a slower pace than last month.

Labor market measures indicated slower retail employment growth and slightly longer workweeks this month. The employment index remained positive but fell six points to 2.0. The hours worked index edged down from 7.5 to 5.6.

Retailers’ perceptions of broader economic conditions reflected more optimism in November. The general business activity index moved up from 22.0 to 25.4. The company outlook index rose five points to 24.6, with 29 percent of respondents reporting that their outlook improved from last month and 5 percent noting it worsened.

Retail price pressures increased while wage pressures eased this month. The selling prices index edged up to 26.1. The wages and benefits index fell slightly from 18.5 to 16.0, although the majority of firms continued to note no change in compensation costs.

Retailers’ perceptions of future broader economic conditions reflected less optimism in November. The index of future general business activity fell from 26.7 to 21.4. The index of future company outlook dipped one point to 24.6. Indexes of future retail sector activity also reflected less optimism this month.

The Texas Retail Outlook Survey (TROS) is a component of the TSSOS that uses information only from respondents in the retail and wholesale sectors.

Next release: December 27, 2017

Data were collected Nov. 13–21, and 292 Texas business executives responded to the survey. The Dallas Fed conducts the Texas Service Sector Outlook Survey monthly to obtain a timely assessment of the state’s service sector activity. Firms are asked whether revenue, employment, prices, general business activity and other indicators increased, decreased or remained unchanged over the previous month.

Survey responses are used to calculate an index for each indicator. Each index is calculated by subtracting the percentage of respondents reporting a decrease from the percentage reporting an increase. When the share of firms reporting an increase exceeds the share reporting a decrease, the index will be greater than zero, suggesting the indicator has increased over the prior month. If the share of firms reporting a decrease exceeds the share reporting an increase, the index will be below zero, suggesting the indicator has decreased over the prior month. An index will be zero when the number of firms reporting an increase is equal to the number of firms reporting a decrease. Data have been seasonally adjusted as necessary.

Texas Service Sector Outlook Survey

November 28, 2017

Historical data are available from January 2007 to the most current release month.

Business Indicators Relating to Facilities and Products in Texas
Current (versus previous month)
IndicatorNov IndexOct IndexChangeIndicator Direction*Trend** (Months)% Reporting Increase% Reporting
No Change
% Reporting Decrease

Revenue

24.4

19.2

+5.2

Increasing

96

36.0

52.4

11.6

Employment

9.8

8.3

+1.5

Increasing

93

17.6

74.6

7.8

Part–Time Employment

4.8

4.1

+0.7

Increasing

17

10.6

83.6

5.8

Hours Worked

7.9

7.8

+0.1

Increasing

13

13.0

81.9

5.1

Wages and Benefits

19.1

16.9

+2.2

Increasing

98

21.7

75.8

2.6

Input Prices

30.8

28.6

+2.2

Increasing

103

31.4

68.0

0.6

Selling Prices

7.2

10.2

–3.0

Increasing

21

15.2

76.8

8.0

Capital Expenditures

14.8

19.4

–4.6

Increasing

99

18.6

77.6

3.8

General Business Conditions
Current (versus previous month)
IndicatorNov IndexOct IndexChangeIndicator Direction*Trend** (Months)% Reporting Improved% Reporting
No Change
% Reporting Worsened

Company Outlook

14.2

16.4

–2.2

Improving

17

23.4

67.4

9.2

General Business Activity

20.4

18.6

+1.8

Improving

15

25.9

68.6

5.5

Business Indicators Relating to Facilities and Products in Texas
Future (six months ahead)
IndicatorNov IndexOct IndexChangeIndicator Direction*Trend** (Months)% Reporting Increase% Reporting
No Change
% Reporting Decrease

Revenue

48.9

47.9

+1.0

Increasing

105

57.6

33.7

8.7

Employment

30.5

29.4

+1.1

Increasing

104

36.0

58.6

5.5

Part–Time Employment

12.9

15.0

–2.1

Increasing

65

18.0

76.9

5.1

Hours Worked

8.5

9.4

–0.9

Increasing

15

12.9

82.7

4.4

Wages and Benefits

43.8

43.8

0.0

Increasing

131

46.2

51.4

2.4

Input Prices

49.6

45.6

+4.0

Increasing

131

51.1

47.4

1.5

Selling Prices

30.1

27.9

+2.2

Increasing

103

35.1

59.9

5.0

Capital Expenditures

28.6

30.4

–1.8

Increasing

104

34.3

60.0

5.7

General Business Conditions
Future (six months ahead)
IndicatorNov IndexOct IndexChangeIndicator Direction*Trend** (Months)% Reporting Improved% Reporting
No Change
% Reporting Worsened

Company Outlook

32.0

32.4

–0.4

Improving

21

38.8

54.4

6.8

General Business Activity

33.0

30.5

+2.5

Improving

21

36.1

60.9

3.1

Texas Retail Outlook Survey

November 28, 2017

Historical data are available from January 2007 to the most current release month.

Business Indicators Relating to Facilities and Products in Texas
Retail (versus previous month)
IndicatorNov IndexOct IndexChangeIndicator Direction*Trend** (Months)% Reporting Increase% Reporting
No Change
% Reporting Decrease
Retail Activity in Texas

Sales

30.4

17.7

+12.7

Increasing

4

38.2

54.0

7.8

Employment

2.0

8.0

–6.0

Increasing

3

6.4

89.2

4.4

Part–Time Employment

7.1

3.7

+3.4

Increasing

2

12.5

82.1

5.4

Hours Worked

5.6

7.5

–1.9

Increasing

5

12.0

81.6

6.4

Wages and Benefits

16.0

18.5

–2.5

Increasing

81

18.2

79.6

2.2

Input Prices

31.1

32.2

–1.1

Increasing

22

31.1

68.9

0.0

Selling Prices

26.1

23.8

+2.3

Increasing

7

29.6

66.9

3.5

Capital Expenditures

12.3

25.0

–12.7

Increasing

16

15.8

80.7

3.5

Inventories

4.6

6.0

–1.4

Increasing

14

18.7

67.2

14.1

Companywide Retail Activity

Companywide Sales

22.1

12.9

+9.2

Increasing

4

31.3

59.5

9.2

Companywide Internet Sales

12.1

10.9

+1.2

Increasing

10

19.5

73.1

7.4

General Business Conditions, Retail
Current (versus previous month)
IndicatorNov IndexOct IndexChangeIndicator Direction*Trend** (Months)% Reporting Improved% Reporting
No Change
% Reporting Worsened

Company Outlook

24.6

19.6

+5.0

Improving

4

29.2

66.2

4.6

General Business Activity

25.4

22.0

+3.4

Improving

6

26.6

72.2

1.2

Business Indicators Relating to Facilities and Products in Texas, Retail
Future (six months ahead)
IndicatorNov IndexOct IndexChangeIndicator Direction*Trend** (Months)% Reporting Increase% Reporting
No Change
% Reporting Decrease
Retail Activity in Texas

Sales

30.8

46.8

–16.0

Increasing

105

39.7

51.4

8.9

Employment

16.8

23.7

–6.9

Increasing

6

20.1

76.6

3.3

Part–Time Employment

8.2

12.7

–4.5

Increasing

3

9.9

88.4

1.7

Hours Worked

4.5

7.9

–3.4

Increasing

4

6.8

90.9

2.3

Wages and Benefits

27.8

35.2

–7.4

Increasing

107

27.8

72.2

0.0

Input Prices

33.9

36.4

–2.5

Increasing

103

37.5

58.9

3.6

Selling Prices

35.7

33.9

+1.8

Increasing

103

37.5

60.7

1.8

Capital Expenditures

17.8

29.1

–11.3

Increasing

14

23.2

71.4

5.4

Inventories

13.3

10.2

+3.1

Increasing

13

25.3

62.7

12.0

Companywide Retail Activity

Companywide Sales

16.6

48.8

–32.2

Increasing

104

23.3

70.0

6.7

Companywide Internet Sales

17.1

23.0

–5.9

Increasing

16

22.0

73.2

4.9

General Business Conditions, Retail
Future (six months ahead)
IndicatorNov IndexOct IndexChangeIndicator Direction*Trend** (Months)% Reporting Improved% Reporting
No Change
% Reporting Worsened

Company Outlook

24.6

25.5

–0.9

Improving

12

28.0

68.6

3.4

General Business Activity

21.4

26.7

–5.3

Improving

15

25.7

70.0

4.3

*Indicator direction refers to this month’s index. If index is positive (negative), indicator is increasing (decreasing) or improving (worsening). If zero, indicator is unchanged.

**Number of months moving in current direction.

Data have been seasonally adjusted as necessary.

Texas Service Sector Outlook Survey

November 28, 2017

Downloadable chart

Texas Retail Outlook Survey

November 28, 2017

Downloadable chart

Texas Service Sector Outlook Survey

November 28, 2017

Comments from Survey Respondents

Telecommunications

  • The flooding in Houston during August and September continues to negatively impact our business. News that several major companies are going to leave the Houston area due to the last two years of flooding is very concerning in how it will impact the economy in future years.

Data Processing, Hosting and Related Services

  • We are worried a bit about how the significant increase in health care benefits costs, which start next month, will impact our finances and hiring. It's quite a rub between the two. We need to continue to hire more employees but are likely to hire fewer because of the incremental health care expense. Regulatory requirements continue to slow down the buying process by our customers. The due diligence during the purchase cycle has gotten to be borderline absurd. It has added time and cost to selling with no incremental benefit for either party—just a lot more paperwork and time.

Securities, Commodity Contracts, and Other Financial Investments and Related Activities

  • We face the same issues with compounding effects: regulations, taxes and insurance moving up and the oil and gas business segment still slow.

Credit Intermediation and Related Activities

  • The South Texas area is continuing to recover from Hurricane Harvey, so there is not yet an identifiable normal.
  • There is a lot of activity resulting in an improved economic environment. The first wind turbine electric generator was delivered to the site for erecting, and work crews are spending time and money in the county. This, combined with the hunting season traffic, continues to increase sales tax revenue and revenue to local businesses. In addition, the new jail is under construction and also contributing to increased personnel spending money locally. More revealing is that liquor sales are up.

Real Estate

  • We have a broad view that things are great, but we are not seeing continued improvements, yet also not seeing any big negative changes. I do think the interest rate changes are dampening general business optimism, the lack of clarity on health care is weighing on the consumer, and immigration uncertainty is dampening activity in the border regions.

Professional, Scientific and Technical Services

  • Year to date, sales are off 12 percent from 2016. There is no sign that they will pick back up to the level of 2016, so we are projecting 2018 to be the same or slightly down from 2017.
  • We are definitely seeing a slowdown in both the residential and commercial real estate markets. Orders are continuing to trend down, and revenue is beginning to follow. We are still very bullish on the Texas economy due to the amount of people still moving here but feel we are experiencing a pause after a very long run.
  • It is late in the calendar year, which puts us at the end of the budget cycle for most of our major commercial clients. As such, we don't expect significant change in client spending through Dec. 31. Come Jan. 1, clients will have new budgets, and we are expecting a modest increase in spending on engineering services and capital projects in 2018.
  • We struggle greatly with entry-level labor. Without a returning worker exemption for the H2B visa program, we will likely not have sufficient labor to execute our contracts and, thus, likely lay off a number of supervisors, estimators and project managers.
  • We are seeing a huge uptick in business from the Middle East and Asia particularly.
  • We are very focused on activity in Washington right now around tax reform. We are somewhat nervous the administration will not get this done. If it fails, then views for 2018 could shift negative.
  • High construction costs and high land costs conspire to thwart additional growth in the real estate sector.

Administrative and Support Services

  • People are being more cautious about luxury spending.
  • Hiring in the tech sector is still lackluster at best. There is still a low level of opportunity in this sector, coupled with customers being slow to make decisions.
  • We need labor and the H2B visa returning-worker exemption.
  • The market in general seems to be cooling with more decision-makers feeling reluctant to commit to new expenses or increased budgets.
  • The aircraft sector in general has remained low since the middle of October. This is seasonal for us and should pick up after Jan. 1. Aircraft are being utilized in the corporate market at this time for personal movements. The industrial sector has become slower in regard to completed products needing final inspections. We see no increase in this area for the foreseeable future. The military sector has slowed with some customers under merger talks or waiting on contracts to be become active at the beginning of 2018.

Ambulatory Health Care Services

  • We are fully recovered from the hurricane—running at record volumes and revenues this month.
  • We are in the health services sector and following the national trend, we are seeing increasing cost of business and decreasing revenue per unit of service as Medicare, Medicaid and health insurance payers tighten qualifying and quality metrics, requiring increasing cost in human resources to meet stricter standards. This is leading to many of the small, medium and stand-alone businesses in health care exiting or consolidating. This is independent of general economic activity and tends to follow the health care business environment.
  • Revenue will improve in November and future months related to increased levels of activity from both existing and new clients. Higher volumes and new product offerings will result in an increased head count. With a tight labor market, new hires are coming in at the higher side of the pay grades. Average workweeks are longer in the short term and possibly long term as we adapt to the continuing increase in volumes. Capital expenditure spending will pick up at the start of the new year.

Hospitals

  • Rural health care systems are being financially hindered through decreased reimbursement and increased regulation.

Nursing and Residential Care Facilities

  • Uncertainty in insurance markets and high levels of the underinsured provide pressure on volumes and revenue.

Amusement, Gambling and Recreation Industries

  • We are dealing with several factors. We lost three weekends in October. No one wants to hold large events on weekends when the University of Texas plays football in town, when the two weekends of the Austin City Limits festival is going on or during F-1 race weekend. We will make up for that in November. Austin continues to open new restaurants. It also continues to be a challenge to hire people, especially since Hurricane Harvey took many of the lower-skilled labor force to Houston where they can make more money in construction. Parking issues downtown and the lack of any reasonable public transportation have continued to be major problems.

Food Services and Drinking Places

  • The biggest change is that sales have moved to the best increases in well over a year, and that is happening with very little increased labor as the higher volumes are making the stores more labor efficient. The sales increase is looking more and more solid and ongoing. The improved outlook in the six-month horizon is tentative, but we are definitely getting more optimistic about the coming year. We have seen some significant increases in cost of goods sold (COGS) for particular products. But we just completed a fiscal period, and the overall COGS for this period versus the last period is down slightly, so the net of price changes in COGS is still indicating very little increase. Of course, increased volume also has the tendency to increase productivity—you are managing to sell a greater percentage of food prepared rather than having significant waste, so that is part of what is holding the cost of COGS in line despite some items taking significant jumps in cost.
  • I believe that business will pick up. I'm investing in this belief; it just hasn't happened yet.
  • We are closed and in a restoration period from Hurricane Harvey.
  • We have planned a price increase for January to cover employee wages, increased health care costs and other increases from vendors.

Support Activities for Transportation

  • We are having a seasonal increase in revenues during November through mid-January. There is also a slight increase in contract employees running through February due to seasonal factors. We have a temporary (30 days) increase in staff due to year-end retirements and cross training replacements. We expect an increase in 2018 activity, which will require little additional cost to develop increased revenues.

Utilities

  • Wholesale electricity prices are up in Texas, as it was recently announced that several coal plants will be retired at the end of 2017/beginning of 2018.

Merchant Wholesalers, Durable Goods

  • Albeit slow, we will continue to see a shift of revenue from the traditional sales model to the internet.
  • Demand for our products and prices have both increased, so I am slightly optimistic about the next six months.

Merchant Wholesalers, Nondurable Goods

  • We are looking to pending acquisitions to add to the bottom line in the next six months.
  • Sales tax revenue in Houston is not increasing. Sales are weak and internet sales keep increasing.

Motor Vehicle and Parts Dealers

  • Qualified optimism. The Senate version of the tax bill with the 30 percent limit on interest deduction would be detrimental to our business plan as well as a majority of, if not all, automotive, truck and heavy equipment dealers. Our business is a Sub S corporation and would be taxed at the pass-through rate of 25 percent, which would likely drastically lower our profits if not eliminate them or would require inflating the sales price that would likely result in lost sales.

Clothing and Clothing Accessories Stores

  • Stabilization of the peso versus the dollar and moderating energy prices have sales at border stores and oil patch stores trending flat with last year.

 

Historical Data

Historical data can be downloaded dating back to January 2007.

Indexes

Download indexes for all indicators. For the definitions of all variables, see Data Definitions.

Texas Service Sector Outlook Survey
Texas Retail Outlook Survey
Unadjusted Unadjusted
Seasonally adjusted Seasonally adjusted

All Data

Download indexes and components of the indexes (percentage of respondents reporting increase, decrease, or no change). For the definitions of all variables, see Data Definitions.

Texas Service Sector Outlook Survey
Texas Retail Outlook Survey
Unadjusted Unadjusted
Seasonally adjusted Seasonally adjusted

Questions regarding the Texas Service Sector Outlook Survey can be addressed to Amy Jordan at amy.jordan@dal.frb.org.

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