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Texas Service Sector Activity Continues to Expand but at Slower Pace

Texas Service Sector Outlook Survey

Report in PDF

May 1, 2018

Texas Service Sector Activity Continues to Expand but at Slower Pace

What’s New This Month

This month, business executives were asked supplemental questions on a range of topics, covering tax reform, tariffs and linkages to the energy industry. Read the Special Questions results.

This month’s data release also includes annual seasonal factor revisions. In April of each year, the Federal Reserve Bank of Dallas revises the historical data for the Texas Service Sector Outlook Survey and Texas Retail Outlook Survey after calculating new seasonal adjustment factors. Annual seasonal revisions result in slight changes in the seasonally adjusted series. Read more information on seasonal adjustment.

Texas service sector activity continued to increase in April, albeit at a slower pace than last month, according to business executives responding to the Texas Service Sector Outlook Survey. The revenue index, a key measure of state service sector conditions, slipped from 20.0 in March to 14.7 in April.

Labor market indicators reflected continued employment growth and longer workweeks this month. The employment index remained largely unchanged at 15.9, a reading well above average. The hours worked index also was largely steady at 8.0.

Perceptions of broader economic conditions continued to reflect optimism in April. The general business activity index edged up from 13.4 to 14.5. The company outlook index fell five points, but remained positive at 12.7, with nearly 21 percent of respondents noting their outlook improved from last month and 8 percent noting it worsened.

Price and wage pressures continued to rise in April. The selling prices index increased from 17 to 19.2, reaching its highest level in over 10 years. The wages and benefits index rose nearly three points to 23.5, with 26.6 percent of firms reporting increases in compensation costs—the highest on record.

Respondents’ expectations regarding future business conditions reflected slightly less optimism in April. The index of future general business activity fell two points to 24.7, while the index of future company outlook slipped seven points to 25, but both remained significantly above their average readings. Indexes of future service sector activity, such as future revenue and employment, continued to reflect optimism this month.

Texas Retail Outlook Survey

May 1, 2018

Retail Sales Fall

Retail sales declined slightly in April, according to business executives responding to the Texas Retail Outlook Survey. The sales index came in at -3.1 in April, down significantly from its March reading of 14.9. Inventories grew at a slower pace.

Labor market measures indicated slower retail employment growth and steady length of workweeks this month. The employment index fell from 17.2 to 9.6. The hours worked index retreated to near zero.

Retailers’ perceptions of broader economic conditions were somewhat mixed in April. The general business activity index turned negative for the first time in nearly a year, coming in at -1.6. The company outlook index remained positive but fell from 6 to 1.5.

Retail price pressures remained elevated but eased somewhat, and wage pressures also moderated this month. The selling prices index fell from 30.4 to 25. The wages and benefits index fell 13 points to 10.3, although the majority of firms continued to note no change in compensation costs.

Retailers’ perceptions of future broader economic conditions reflected continued optimism in April. The index of future general business activity remained largely unchanged at 13.8, while the index of future company outlook fell from 18.9 to 7.6. Indexes of future retail sector activity continued to reflect 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: May 30, 2018

Data were collected April 17–25, and 274 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

May 1, 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)
IndicatorApr IndexMar IndexChangeIndicator Direction*Trend** (Months)% Reporting Increase% Reporting
No Change
% Reporting Decrease

Revenue

14.7

20.0

–5.3

Increasing

100

31.4

51.9

16.7

Employment

15.9

15.3

+0.6

Increasing

98

22.3

71.2

6.4

Part–Time Employment

3.7

5.1

–1.4

Increasing

3

7.1

89.5

3.4

Hours Worked

8.0

8.3

–0.3

Increasing

18

12.0

84.0

4.0

Wages and Benefits

23.5

20.9

+2.6

Increasing

107

26.6

70.3

3.1

Input Prices

27.9

29.2

–1.3

Increasing

108

30.1

67.7

2.2

Selling Prices

19.2

17.0

+2.2

Increasing

26

21.5

76.2

2.3

Capital Expenditures

17.7

19.0

–1.3

Increasing

104

21.4

74.8

3.7

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

Company Outlook

12.7

17.7

–5.0

Improving

22

20.7

71.3

8.0

General Business Activity

14.5

13.4

+1.1

Improving

20

23.7

67.1

9.2

IndicatorApr IndexMar IndexChangeIndicator Direction*Trend** (Months)% Reporting Increase% Reporting
No Change
% Reporting Decrease

Outlook Uncertainty†

11.3

5.9

+5.4

Increasing

3

22.2

67.0

10.9

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

Revenue

48.6

51.9

–3.3

Increasing

110

56.1

36.4

7.5

Employment

29.1

32.8

–3.7

Increasing

109

35.8

57.5

6.7

Part–Time Employment

14.8

12.7

+2.1

Increasing

70

18.5

77.9

3.7

Hours Worked

13.3

13.6

–0.3

Increasing

20

15.9

81.5

2.6

Wages and Benefits

49.4

50.0

–0.6

Increasing

136

51.4

46.6

2.0

Input Prices

45.9

47.0

–1.1

Increasing

136

48.6

48.6

2.7

Selling Prices

34.5

39.6

–5.1

Increasing

108

40.1

54.3

5.6

Capital Expenditures

26.8

32.9

–6.1

Increasing

109

31.8

63.3

5.0

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

Company Outlook

25.0

32.1

–7.1

Improving

26

34.7

55.7

9.7

General Business Activity

24.7

26.9

–2.2

Improving

26

33.1

58.4

8.4

Texas Retail Outlook Survey

May 1, 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)
IndicatorApr IndexMar IndexChangeIndicator Direction*Trend** (Months)% Reporting Increase% Reporting
No Change
% Reporting Decrease
Retail Activity in Texas

Sales

–3.1

14.9

–18.0

Decreasing

1

24.1

48.6

27.2

Employment

9.6

17.2

–7.6

Increasing

8

11.0

87.6

1.4

Part–Time Employment

0.0

4.0

–4.0

No Change

1

2.0

96.1

2.0

Hours Worked

0.7

10.3

–9.6

Increasing

10

7.3

86.1

6.6

Wages and Benefits

10.3

23.6

–13.3

Increasing

86

20.7

68.9

10.4

Input Prices

32.3

34.2

–1.9

Increasing

27

34.9

62.5

2.6

Selling Prices

25.0

30.4

–5.4

Increasing

13

33.1

58.8

8.1

Capital Expenditures

16.0

17.6

–1.6

Increasing

21

20.0

76.0

4.0

Inventories

11.5

11.7

–0.2

Increasing

19

26.9

57.7

15.4

Companywide Retail Activity

Companywide Sales

–3.7

14.7

–18.4

Decreasing

1

23.5

49.4

27.2

Companywide Internet Sales

–0.7

18.2

–18.9

Decreasing

1

17.6

64.2

18.3

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

Company Outlook

1.5

6.0

–4.5

Improving

13

13.5

74.5

12.0

General Business Activity

–1.6

1.5

–3.1

Worsening

1

13.0

72.4

14.6

Outlook Uncertainty
Current (versus previous month)
IndicatorApr IndexMar IndexChangeIndicator Direction*Trend** (Months)% Reporting Increase% Reporting
No Change
% Reporting Decrease

Outlook Uncertainty†

6.0

8.3

–2.3

Increasing

3

16.0

74.0

10.0

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

Sales

38.1

37.5

+0.6

Increasing

110

47.1

43.8

9.0

Employment

20.4

20.0

+0.4

Increasing

11

24.6

71.2

4.2

Part–Time Employment

4.8

1.0

+3.8

Increasing

2

8.6

87.6

3.8

Hours Worked

10.9

5.6

+5.3

Increasing

9

15.8

79.3

4.9

Wages and Benefits

42.4

46.9

–4.5

Increasing

112

44.6

53.3

2.2

Input Prices

39.2

37.5

+1.7

Increasing

108

43.1

52.9

3.9

Selling Prices

31.4

43.7

–12.3

Increasing

108

41.2

49.0

9.8

Capital Expenditures

21.6

31.3

–9.7

Increasing

19

27.5

66.7

5.9

Inventories

10.5

19.1

–8.6

Increasing

18

23.5

63.5

13.0

Companywide Retail Activity

Companywide Sales

26.9

38.2

–11.3

Increasing

109

37.9

51.1

11.0

Companywide Internet Sales

18.9

25.7

–6.8

Increasing

21

24.3

70.3

5.4

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

Company Outlook

7.6

18.9

–11.3

Improving

17

22.0

63.6

14.4

General Business Activity

13.8

14.0

–0.2

Improving

20

25.3

63.2

11.5

*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

May 1, 2018

Downloadable chart

Texas Retail Outlook Survey

May 1, 2018

Downloadable chart

Texas Service Sector Outlook Survey

May 1, 2018

Comments from Survey Respondents

Data Processing, Hosting and Related Services

  • Sales cycles are long. There is some uncertainty in the market and many hurdles to get clients to commit. The cost of health care has been quite a burden this year for our company. Even the “competitive” plans are extremely expensive for the company and families.

Credit Intermediation and Related Activities

  • We have seen an increase in loan activity and an increase in deposits. Business activity has increased locally, particularly in construction and wind-generation projects. The possibility of drought conditions expanding is a major concern for the agriculture industry in Texas.

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

  • Our company is caught in the cost/price squeeze. On one hand, costs are increasing, and on the other hand, price increases cannot be sustained. Cost increases seem to be virtually uncontrollable, i.e., property taxes, insurance, regulatory costs, etc.
  • Lack of moisture is hurting agriculture and business confidence. The labor market is tightening.

Rental and Leasing Services

  • Regulation is slowing our business. It took us 18 months to get a shovel in the ground on building a new $15 million facility in San Antonio due to bureaucratic processes.

Professional, Scientific and Technical Services

  • Our clients are showing increased confidence in the economy and are willing to start capital projects and improvement projects that were on hold last year. The change in attitude may be attributable in part to having cash to spend this year as a result of the tax reform bill; we have not found another factor that accounts for the change in spending.
  • We are firing on all eight cylinders as many large clients are kicking in.
  • It’s hard to determine where this real estate market is heading. Our orders have rebounded from a decline in the last quarter of 2017 to what we consider strong. The DFW area is growing into a very large city with over 400 people per day still moving here. There is a lot of optimism regarding the housing market, but uncertainty generated by the current administration could damper future investment projects.
  • Construction activity remains strong, but orders for engineering services for future work are slowing. We should see a slowing in construction activity over the next four to six months.
  • The confidence in the economy continues to weaken as a result of high uncertainty.

Management of Companies and Enterprises

  • The rising interest rates are cooling things off on the residential side.
  • South Texas seems to be regaining consumer confidence levels as we continue healing our wounds left from Hurricane Harvey. Business tax cuts resulting in higher wages among some workers seem to have created improved attitudes toward spending.

Administrative and Support Services

  • We have been awarded two new contracts and added two part-time workers.
  • Our ability to market and sell our services is improving, resulting in higher business activity.
  • We are optimistic about the real estate sector, particularly in multifamily, but there is uncertainty in the restaurant business due to high competition and price pressures.
  • Business has increased since March, and we see this positive trend continuing throughout 2018. However, the cost of doing business continues to grow.
  • We need workers!

Ambulatory Health Care Services

  • We are still recovering from infrastructure losses due to Hurricane Harvey.
  • Business activity has been steady, but drought conditions in the Panhandle are beginning to impact the local economy. This will likely cause a fall in elective surgeries, such as cataracts, and cause patients to delay other care.

Hospitals

  • Increased regulation is putting independent rural health systems at risk.

Nursing and Residential Care Facilities

  • A lack of clarity in federal policy regarding Medicare reimbursement/regulation makes the health care market uncertain and unstable for health care providers. We think there is a negative outlook for many hospitals for the next six to 12 months.
  • Health care costs and the lack of qualified employees, combined with a lack of applicants, have driven costs up to never-before-seen highs. In addition, more clients require state or federal financial assistance to participate in our programs.

Amusement, Gambling and Recreation Industries

  • Uncertainty and regulation are affecting our business. Activity is strong, but we continue to deal with mandatory sick leave policies (with more city mandates to come), horrible property taxes, limited parking, transportation bottlenecks and health insurance costs. In addition, construction activity in Austin is very vibrant, causing us to have to compete for labor and an increase in prices for renovation projects.

Accommodation

  • Our ability to get better pricing has been very good.

Food Services and Drinking Places

  • We are still recovering from Hurricane Harvey but have started our reopening. We are aiming to be fully operational by June 1.
  • It has been a story of sharp ups and downs since Easter. Our wages are moving up to around a 2 percent annual rate. We have held the cost of goods sold to about the same because we have increased prices. We see uncertainty going up in the coming months.

Personal and Laundry Services

  • The greatest challenge is to hire qualified employees in a very competitive marketplace. Due to low supply of skilled, licensed employees in the market, hourly wages and commissions are now at record highs. We had to increase hourly wages by almost 20 percent for new employees in addition to offering  signing bonuses between $500 and $1,000 to be paid after 90 days of employment. In more than 10 years of business, we have never had to offer signing bonuses this high. My greatest concern for 2018 is labor costs.

Support Activities for Transportation

  • The uncertainty of the NAFTA agreement negatively impacted our capital investments. We won’t start the construction of a new facility in Weslaco until we know the outcome of the negotiations.

Merchant Wholesalers, Nondurable Goods

  • The steel tariffs have caused dramatic, unprecedented increases in steel prices. They have also distorted supply chains and purchasing patterns. Daily demand in March and early April have not been indicative of actual consumption but rather fear and hedge-based purchasing. The slow pace at which the administration is rolling out exemptions, coupled with the announcement pattern and “temporary” exemptions, has thrown planning and normal business activity out the window.
  • Market and pricing in China are changing dramatically daily. On some items, the market has disappeared, for others pricing has dropped over 30 percent. No telling how things will change day to day. Indian cash tightness is also limiting size of sales.
  • A strong March has turned into a mediocre April. There were lots of price increases from suppliers, and we are having issues passing the increases along. We are getting pushback from end users. Increases seem to be putting customers off.

Motor Vehicle and Parts Dealers

  • Gross margins shrink as expenses increase. Profits for the first quarter of this year are down 14 percent from the prior year. Sales are flat but still strong.

Building Material and Garden Equipment and Supplies Dealers

  • Federal Reserve rate adjustments are increasing our interest costs on lines of credit, which reduces our profitability. We would like to see rates hold steady at the present time with no increase for the rest of the year. Rate increases have a negative effect on the bottom line of small business.
  • Adverse weekend weather conditions have negatively impacted consumer demand in the retail space.

Clothing and Clothing Accessories Stores

  • April sales across the country have been disappointing. Specifically, ongoing cold weather has impacted the sales of spring-type merchandise. Sales of sandals, swimsuits, shorts and T-shirts have all suffered.

 

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 Jesus Cañas at jesus.canas@dal.frb.org.

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