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Texas Service Sector Activity Continues to Increase

Texas Service Sector Outlook Survey

Report in PDF

February 27, 2018

Texas Service Sector Activity Continues to Increase

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 continued to reflect expansion in February, according to business executives responding to the Texas Service Sector Outlook Survey. The revenue index, a key measure of state service sector conditions, came in at a reading of 13.2, similar to January.

Labor market indicators reflected faster employment growth and slightly longer workweeks this month. The employment index rose from 6.8 to 12.3. The hours worked index was unchanged at 3.8.

Perceptions of broader economic conditions reflected less optimism in February. The general business activity index fell five points to 17.5. The company outlook index moved down eight points to 12.9, with 24 percent of respondents noting their outlook improved from last month and 11 percent noting it worsened.

Price and wage pressures increased this month. The selling prices index moved up from 12.4 to 16.6. The wages and benefits index rose seven points to 22.2, although the majority of firms continued to note no change in compensation costs.

Respondents’ expectations regarding future business conditions reflected less optimism in February. The index of future general business activity fell from 36.0 to 30.5. The index of future company outlook moved down from 34.5 to 25.7. Indexes of future service sector activity, such as future revenue and employment, continued to reflect optimism this month.

Texas Retail Outlook Survey

February 27, 2018

Retail Sales Continue to Decline

Retail sales continued to fall in February for the second consecutive month, according to business executives responding to the Texas Retail Outlook Survey. The sales index fell from –3.2 in January to –9.4 in February. Inventories increased at a slower pace than last month.

Labor market measures indicated faster retail employment growth and longer workweeks this month. The employment index jumped from 1.6 to 12.1. The hours worked index rose four points to 5.5.

Retailers’ perceptions of broader economic conditions reflected less optimism in February. The general business activity index plunged 13 points to 4.4, its lowest level in seven months. The company outlook index dropped 10 points to 2.4, with 20 percent of respondents reporting that their outlook improved from last month and 17 percent noting it worsened.

Retail price and wage pressures increased this month. The selling prices index surged 12 points to 31.8. The wages and benefits index moved up three points to 19.9, although the majority of firms continued to note no change in compensation costs.

Retailers’ perceptions of future broader economic conditions reflected less optimism in February. The index of future general business activity dropped 20 points to 7.1, while the index of future company outlook plunged from 24.5 to 3.7. 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: March 27, 2018

Data were collected Feb. 13–21, and 279 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

February 27, 2018

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)
Indicator Feb Index Jan Index Change Indicator Direction* Trend** (Months) % Reporting Increase % Reporting
No Change
% Reporting Decrease

Revenue

13.2

12.8

+0.4

Increasing

99

30.5

52.2

17.3

Employment

12.3

6.8

+5.5

Increasing

96

16.8

78.7

4.5

Part–Time Employment

2.7

0.1

+2.6

Increasing

20

7.8

87.1

5.1

Hours Worked

3.8

3.9

–0.1

Increasing

16

9.7

84.4

5.9

Wages and Benefits

22.2

15.0

+7.2

Increasing

101

24.2

73.8

2.0

Input Prices

35.5

33.7

+1.8

Increasing

106

36.1

63.4

0.6

Selling Prices

16.6

12.4

+4.2

Increasing

24

20.0

76.6

3.4

Capital Expenditures

16.7

8.8

+7.9

Increasing

102

20.1

76.5

3.4

General Business Conditions
Current (versus previous month)
Indicator Feb Index Jan Index Change Indicator Direction* Trend** (Months) % Reporting Improved % Reporting
No Change
% Reporting Worsened

Company Outlook

12.9

20.9

–8.0

Improving

20

23.8

65.3

10.9

General Business Activity

17.5

22.2

–4.7

Improving

18

27.4

62.6

9.9

Indicator Feb Index Jan Index Change Indicator Direction* Trend** (Months) % Reporting Increase % Reporting
No Change
% Reporting Decrease

Outlook Uncertainty†

9.9

–1.4

+11.3

Increasing

1

21.7

66.5

11.8

Business Indicators Relating to Facilities and Products in Texas
Future (six months ahead)
Indicator Feb Index Jan Index Change Indicator Direction* Trend** (Months) % Reporting Increase % Reporting
No Change
% Reporting Decrease

Revenue

50.3

53.8

–3.5

Increasing

108

58.6

33.1

8.3

Employment

31.8

30.3

+1.5

Increasing

107

39.6

52.5

7.8

Part–Time Employment

10.1

14.0

–3.9

Increasing

68

16.6

76.9

6.5

Hours Worked

13.2

11.8

+1.4

Increasing

18

16.4

80.4

3.2

Wages and Benefits

45.6

47.2

–1.6

Increasing

134

49.6

46.5

4.0

Input Prices

47.5

51.3

–3.8

Increasing

134

50.0

47.5

2.5

Selling Prices

32.7

38.2

–5.5

Increasing

106

37.8

57.2

5.1

Capital Expenditures

35.2

35.6

–0.4

Increasing

107

40.3

54.6

5.1

General Business Conditions
Future (six months ahead)
Indicator Feb Index Jan Index Change Indicator Direction* Trend** (Months) % Reporting Improved % Reporting
No Change
% Reporting Worsened

Company Outlook

25.7

34.5

–8.8

Improving

24

35.5

54.7

9.8

General Business Activity

30.5

36.0

–5.5

Improving

24

36.7

57.0

6.2

Texas Retail Outlook Survey

February 27, 2018

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)
Indicator Feb Index Jan Index Change Indicator Direction* Trend** (Months) % Reporting Increase % Reporting
No Change
% Reporting Decrease
Retail Activity in Texas

Sales

–9.4

–3.2

–6.2

Decreasing

2

25.1

40.4

34.5

Employment

12.1

1.6

+10.5

Increasing

6

14.9

82.3

2.8

Part–Time Employment

2.0

–7.1

+9.1

Increasing

1

10.2

81.6

8.2

Hours Worked

5.5

1.6

+3.9

Increasing

8

12.6

80.3

7.1

Wages and Benefits

19.9

16.8

+3.1

Increasing

84

25.5

68.9

5.6

Input Prices

37.3

35.8

+1.5

Increasing

25

41.3

54.7

4.0

Selling Prices

31.8

20.2

+11.6

Increasing

10

36.5

58.8

4.7

Capital Expenditures

11.7

5.2

+6.5

Increasing

19

17.6

76.5

5.9

Inventories

1.3

7.4

–6.1

Increasing

17

19.0

63.3

17.7

Companywide Retail Activity

Companywide Sales

–10.4

1.6

–12.0

Decreasing

1

20.4

48.9

30.8

Companywide Internet Sales

8.2

11.5

–3.3

Increasing

13

19.7

68.8

11.5

General Business Conditions, Retail
Current (versus previous month)
Indicator Feb Index Jan Index Change Indicator Direction* Trend** (Months) % Reporting Improved % Reporting
No Change
% Reporting Worsened

Company Outlook

2.4

12.7

–10.3

Improving

7

19.8

62.8

17.4

General Business Activity

4.4

17.8

–13.4

Improving

9

20.3

63.8

15.9

Outlook Uncertainty
Current (versus previous month)
Indicator Feb Index Jan Index Change Indicator Direction* Trend** (Months) % Reporting Increase % Reporting
No Change
% Reporting Decrease

Outlook Uncertainty†

12.7

–9.4

+22.1

Increasing

1

25.5

61.7

12.8

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

Sales

28.8

34.8

–6.0

Increasing

108

40.9

47.0

12.1

Employment

8.9

16.3

–7.4

Increasing

9

20.5

67.9

11.6

Part–Time Employment

–2.0

12.0

–14.0

Decreasing

1

10.4

77.2

12.4

Hours Worked

5.6

5.7

–0.1

Increasing

7

14.0

77.6

8.4

Wages and Benefits

25.2

37.1

–11.9

Increasing

110

33.3

58.6

8.1

Input Prices

38.0

46.3

–8.3

Increasing

106

46.0

46.0

8.0

Selling Prices

28.0

42.5

–14.5

Increasing

106

40.0

48.0

12.0

Capital Expenditures

26.0

28.3

–2.3

Increasing

17

34.0

58.0

8.0

Inventories

10.9

7.2

+3.7

Increasing

16

26.6

57.7

15.7

Companywide Retail Activity

Companywide Sales

26.0

39.6

–13.6

Increasing

107

38.0

50.0

12.0

Companywide Internet Sales

15.2

25.0

–9.8

Increasing

19

27.3

60.6

12.1

General Business Conditions, Retail
Future (six months ahead)
Indicator Feb Index Jan Index Change Indicator Direction* Trend** (Months) % Reporting Improved % Reporting
No Change
% Reporting Worsened

Company Outlook

3.7

24.5

–20.8

Improving

15

18.6

66.5

14.9

General Business Activity

7.1

26.6

–19.5

Improving

18

19.1

68.9

12.0

*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.

†Added to survey in January 2018.

Data have been seasonally adjusted as necessary, with the exception of the outlook uncertainty index which does not yet have a sufficiently long time series to test for seasonality.

Texas Service Sector Outlook Survey

February 27, 2018

Downloadable chart

Texas Retail Outlook Survey

February 27, 2018

Downloadable chart

Texas Service Sector Outlook Survey

February 27, 2018

Comments from Survey Respondents

Publishing Industries (Except Internet)

  • Business is still positive with increased activity/inquiries.

Data Processing, Hosting and Related Services

  • Our clients and prospects are much more open to purchasing decisions and adding new technology than they were a year ago and perhaps more than six months ago. Clients are paying on time more frequently than a year ago. Regulations still make the sales cycle extraordinarily long and don't seem to add value to the process.

Credit Intermediation and Related Activities

  • One of the specialty fracture sand-coating plants is closing down and moving to mobile units that produce coating sand for fracking on well sites. This will displace 30 to 35 people that will be looking for a job or moving out to seek work elsewhere. The initial plan in phase one to erect 60 wind generation towers is in full swing and creating a boost to the local economy with the influx of contract workers and the payment of leases to local landowners.
  • Activity has been impacted by the flu outbreak.

Insurance Carriers and Related Activities

  • There is a pretty quiet, stable, status quo kind of vibe in northeast Texas right now.

Real Estate

  • Volatility in the financial markets and rising interest rates will have a chilling effect on both commercial real estate acquisitions and new development. Additionally, some marginal impact on the new-home market will be felt as a result of higher interest rates and some borrowers/homebuyers unwilling to proceed with purchase or unable to qualify at the margin.
  • We still feel the fundamentals for our market are solid, but the lack of clarity on NAFTA (North American Free Trade Agreement) and immigration are still major issues.
  • Sun and spring weather are always good for real estate sales.

Rental and Leasing Services

  • While we are stuck in a 5 percent growth-per-year trend the last five years, we think 2018 will be a good year. Maybe that is mostly due to the belief the oilfield will continue to heat up in 2018, which directly impacts our material and construction machinery dealership. Still, there is way too much supply in our industry for the demand and, therefore, absolutely no pricing power. We are expanding our equipment rental fleet due to demand in the oilfield; we know that can come back to bite you at the drop of the hat, but we are doing such with 0 percent interest loans and cash. I remain concerned and optimistic short term.

Professional, Scientific and Technical Services

  • We are clearly watching economic indicators closely right now. We have some concern about inflation and rising rates, and the impact upward moves in those indicators will have on the broader market, particularly increases in bond yields. There is a lot at play here from views on large deficits and borrowing to some traders dumping to push yields, which could get expensive. We have had a few very unsettling weeks, but seeing markets recover some has been positive. Stabilization and hopefully favorable business activity in coming weeks will be welcome. We do continue to watch the weakening dollar and falling oil prices. We would like to see those strengthen some, otherwise, it could impact a group of our clients and cause some retraction in transactional activity.
  • General business activity in the real estate industry is definitely slowing down. The residential market is still strong, but with these rising interest rates, we will have to wait and see how much of an effect it will have on sales. Commercially, we feel like everyone is in a holding pattern to see how the economy is going to react to the 10-year rate approaching 3 percent. We don't anticipate a crash, just a slowdown.
  • We released a new major product in February, so we are expecting a revenue increase in 2018. Both U.S. and overseas orders are good.
  • The oil and gas industry is driving our business up, with several new pipelines creating a demand for our product, which is people.
  • Our changes are due to the loss of one customer contract.
  • The recent lack of confidence in the market has not helped the business climate. Investors remain skittish.
  • Notwithstanding the recent stock market disruption, business market fundamentals are still strong, and recent tax changes and the proposed budget on infrastructure spending should provide significant market activity throughout the year.
  • Change or threat thereof in interest rates appears to be stimulating project activity to beat future interest hikes.

Management of Companies and Enterprises

  • There is too much government regulation.
  • We are beginning to see some slowdown in our rural markets. Our suburban markets, especially in Central Texas, continue to experience strong demand on loans.

Administrative and Support Services

  • Growth in the economy has not resulted in increased demand for independent IT contract staff yet. Employers are still lagging on hiring full-time employees and slow on decisions with jobs where they have interviewed candidates. The cost pressure has been increasing since mid-2017 with no corresponding possibility for price increases to our customers yet.
  • As government contractors, we are very busy during the first quarter of our financial calendar year. We are working on several proposals that will provide an increase in revenue and employment.
  • We need the H2B returning worker exemption.
  • We experienced a lot of weather issues.
  • The February weather and full-time personnel changes have caused a decline in February. We have some very good full-time hires in progress; the training time will delay our 2018 goals, which I feel that we will still make.
  • Purchase of travel is a "feel-good purchase," which the mood swings presented by the media, stock market and current events tend to add to the peaks and valleys of requests. This is reflected in revenue spikes and staffing needs.
  • I am in the staffing and recruiting business, so when unemployment hovers around 4 to 5 percent and the general feeling from the public around continued economic health is good, then we see a positive employment outlook, which translates to increased revenue and, hopefully, profits.
  • Overall activity on requests for quotes for all sectors has increased.

Educational Services

  • The tax cuts kick in this month and should on balance increase employees’ take-home pay.
  • Business activity continues to be strong. There are significant pressures on recruitment and hiring of qualified staff. There are major issues on construction timelines due to building activity in Texas, particularly in the Houston area.

Ambulatory Health Care Services

  • We are extremely busy much earlier in the year. I believe this reflects lower prices for our outpatient procedures as patients have very high deductibles to deal with. They are searching for ways to save money outside of the hospital. Our hospital outpatient radiology schedule remains slow.
  • Higher volumes planned for January and February will shift slightly to later in the year; however, the overall outlook is positive for the year compared to the forecast. Labor force pressures continue to drive wages higher to both keep and recruit new talent.

Hospitals

  • Increased regulation and decreasing funding continue to strain rural independent health systems. Continued closures of hospitals or consolidation of smaller facilities is not ideal for the health care of rural America.

Nursing and Residential Care Facilities

  • We are experiencing a severe shortage of nurses and direct-care employees in West Texas. We closed one division of a nursing facility due in part to staffing challenges. By doing so, we reduced the number of employees needed, mainly from the number of part-time and occasional staff needed to cover open positions. This year we are also starting a repositioning plan to consolidate and update our campus physical structures. That will result in increased capital costs.

Accommodation

  • January was our worst January since 2011.

Food Services and Drinking Places

  • We will open a new restaurant in McAllen, Texas, in the next six months. Overall, business remains strong.
  • Qualified talent continues to be a problem with huge pressures on increased wages across the board.
  • We were still up in revenue compared to last year on a same-store basis in February versus January, but our percentage of increase dropped drastically to where we were up by less than the price increases we have taken over the last year. We don't know if February is going to be the exception or if the trend will prove to have changed. That is why we are indicating that the uncertainty has increased.

Pipeline Transportation

  • Increased confidence that the regulatory system is level-set regarding permitting and construction of new infrastructure projects is facilitating advancement of projects previously considered too risky.

Support Activities for Transportation

  • We are engaged in international trade with Mexico, so current administration policies negatively impact our business.

Motor Vehicle and Parts Dealers

  • Big stock market swings are a big disrupter to our business.
  • Currently, any uncertainty has not affected our business.
  • Weather has reduced our sales in January and February.
  • There is increased pressure on wages in general. Our luxury brands in our auto business have softened more than the mass-market brands.
  • We experienced a significant decline in sales and profits from the prior month and prior year. This is a disturbing start to the new year.

Furniture and Home Furnishings Stores

  • There has been a downward turn in business due mainly to weather issues.

Building Material and Garden Equipment and Supplies Dealers

  • Business is good at this time, but still uncertainty seems to be on lots of peoples’ minds. Turmoil in Washington, the stock market, along with global unrest might be some of the underlying problems. Interest rates and inflation don't seem to be a big issue in our business at this time.
  • The negative impacts of the 2017 tax law are being felt sooner than expected. These include inflation, driven partly by increased after-tax labor cost, and rising interest rates driven by swelling federal deficits.

Gasoline Stations

  • Sales declines are cyclical and weather related. The stock market volatility and probable further declines give some pause but don't actually impact my business other than at a macroeconomy level—health of spenders as a whole.

Clothing and Clothing Accessories Stores

  • Sales in Texas stores continue to benefit from stabilized or higher energy prices and some additional discretionary income among guests.

 

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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