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Texas Service Sector Activity Expands at an Accelerated Pace

Texas Service Sector Outlook Survey

Report in PDF

May 30, 2018

Texas Service Sector Activity Expands at an Accelerated Pace

What’s New This Month

For this month’s survey, Texas business executives were asked supplemental questions on the labor market, wages and prices. 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 accelerated sharply in May, according to business executives responding to the Texas Service Sector Outlook Survey. The revenue index, a key measure of state service sector conditions, increased from 14.7 in April to 22.8 in May, reaching its highest reading so far this year.

Labor market indicators reflected continued employment growth and longer workweeks this month. The employment index held mostly steady at 16.6, its highest reading since mid-2014. The hours worked index edged up to a six-year high of 10.4 from 8.0 in April.

Perceptions of broader economic conditions reflected further optimism in May. The general business activity index advanced four points to 18.5, while the company outlook index rose slightly to 15.4 from 12.7 in April.

Price and wage pressures remained strong in May, though they eased slightly compared with April. The selling prices index fell from 19.2 to 15.4, though it remains above its 2017 average. The wages and benefits index came in at 22.6, similar to April’s reading.

Respondents’ expectations regarding future business conditions reflected slightly more optimism in May. The indexes of future general business activity and future company outlook edged up slightly to 25.7 and 26.8, respectively, with both measures remaining significantly above their average readings. Wage expectations also increased, as the future wage and benefits index rose to an 11-year high. Indexes of future service sector activity, such as revenue and employment, also reflected growing optimism this month.

Texas Retail Outlook Survey

May 30, 2018

Retail Sales Rebound as Index Rises to Multiyear High

Retail sales surged in May, according to business executives responding to the Texas Retail Outlook Survey. The sales index climbed to 35.1 in May, up from its April value of -3.1, and reached its highest reading since before the beginning of the oil bust in 2015. Inventories declined, with the index plummeting over 20 points to -8.6.

Labor market measures indicated continued retail employment growth and lengthening of workweeks this month. The employment index dipped to 8.4, a reading well above its average level. The hours worked index picked up to 4.6.

Retailers’ perceptions of broader economic conditions improved significantly in May. The general business activity index rebounded from -1.6 to 14.9. The company outlook index rose sharply from 1.5 to 13.2.

Retail price pressures remained elevated, while wage pressures accelerated this month. The selling prices index remained largely unchanged at 24.6, well above average. The wages and benefits index increased to 24.1, its highest level since January 2017.

Retailers’ perceptions of future broader economic conditions reflected increased optimism in May. The index of future general business activity advanced nearly seven points to 20.7, while the index of future company outlook surged from 7.6 to 23.7. Indexes of future retail sector activity picked up, with the future sales index increasing to its highest level this year.

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: June 26, 2018

Data were collected May 15–23, and 224 Texas service sector and 46 retail sector 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 30, 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)
IndicatorMay IndexApr IndexChangeIndicator Direction*Trend** (Months)% Reporting Increase% Reporting
No Change
% Reporting Decrease

Revenue

22.8

14.7

+8.1

Increasing

101

37.5

47.8

14.7

Employment

16.6

15.9

+0.7

Increasing

99

25.0

66.6

8.4

Part–Time Employment

5.6

3.7

+1.9

Increasing

4

10.8

84.0

5.2

Hours Worked

10.4

8.0

+2.4

Increasing

19

13.2

83.9

2.8

Wages and Benefits

22.6

23.5

–0.9

Increasing

108

25.7

71.2

3.1

Input Prices

32.0

27.9

+4.1

Increasing

109

33.4

65.2

1.4

Selling Prices

15.4

19.2

–3.8

Increasing

27

19.8

75.8

4.4

Capital Expenditures

18.4

17.7

+0.7

Increasing

105

20.7

77.1

2.3

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

Company Outlook

15.4

12.7

+2.7

Improving

23

24.0

67.3

8.6

General Business Activity

18.5

14.5

+4.0

Improving

21

26.0

66.5

7.5

IndicatorMay IndexApr IndexChangeIndicator Direction*Trend** (Months)% Reporting Increase% Reporting
No Change
% Reporting Decrease

Outlook Uncertainty†

5.3

11.3

–6.0

Increasing

4

19.4

66.5

14.1

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

Revenue

50.9

48.6

+2.3

Increasing

111

58.3

34.3

7.4

Employment

30.9

29.1

+1.8

Increasing

110

38.1

54.7

7.2

Part–Time Employment

13.2

14.8

–1.6

Increasing

71

17.5

78.1

4.3

Hours Worked

14.4

13.3

+1.1

Increasing

21

16.7

81.0

2.3

Wages and Benefits

50.6

49.4

+1.2

Increasing

137

53.0

44.6

2.4

Input Prices

47.3

45.9

+1.4

Increasing

137

50.0

47.3

2.7

Selling Prices

36.7

34.5

+2.2

Increasing

109

42.3

52.2

5.6

Capital Expenditures

26.9

26.8

+0.1

Increasing

110

30.4

66.0

3.5

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

Company Outlook

26.8

25.0

+1.8

Improving

27

35.6

55.6

8.8

General Business Activity

25.7

24.7

+1.0

Improving

27

32.8

60.1

7.1

Texas Retail Outlook Survey

May 30, 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)
IndicatorMay IndexApr IndexChangeIndicator Direction*Trend** (Months)% Reporting Increase% Reporting
No Change
% Reporting Decrease
Retail Activity in Texas

Sales

35.1

–3.1

+38.2

Increasing

1

50.1

34.9

15.0

Employment

8.4

9.6

–1.2

Increasing

9

16.1

76.2

7.7

Part–Time Employment

6.7

0.0

+6.7

Increasing

1

8.9

88.9

2.2

Hours Worked

4.6

0.7

+3.9

Increasing

11

10.8

83.0

6.2

Wages and Benefits

24.1

10.3

+13.8

Increasing

87

27.5

69.1

3.4

Input Prices

32.3

32.3

0.0

Increasing

28

33.6

65.1

1.3

Selling Prices

24.6

25.0

–0.4

Increasing

14

34.2

56.2

9.6

Capital Expenditures

13.0

16.0

–3.0

Increasing

22

15.2

82.6

2.2

Inventories

–8.6

11.5

–20.1

Decreasing

1

11.0

69.4

19.6

Companywide Retail Activity

Companywide Sales

28.0

–3.7

+31.7

Increasing

1

37.5

53.0

9.5

Companywide Internet Sales

15.9

–0.7

+16.6

Increasing

1

18.0

79.9

2.1

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

Company Outlook

13.2

1.5

+11.7

Improving

14

26.7

59.8

13.5

General Business Activity

14.9

–1.6

+16.5

Improving

1

22.7

69.5

7.8

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

Outlook Uncertainty†

–4.8

6.0

–10.8

Decreasing

1

19.0

57.1

23.8

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

Sales

42.8

38.1

+4.7

Increasing

111

55.5

31.8

12.7

Employment

16.3

20.4

–4.1

Increasing

12

24.5

67.3

8.2

Part–Time Employment

2.3

4.8

–2.5

Increasing

3

9.9

82.5

7.6

Hours Worked

6.2

10.9

–4.7

Increasing

10

11.4

83.4

5.2

Wages and Benefits

41.5

42.4

–0.9

Increasing

113

45.6

50.3

4.1

Input Prices

35.5

39.2

–3.7

Increasing

109

44.4

46.7

8.9

Selling Prices

37.2

31.4

+5.8

Increasing

109

44.2

48.8

7.0

Capital Expenditures

15.6

21.6

–6.0

Increasing

20

20.0

75.6

4.4

Inventories

0.2

10.5

–10.3

Increasing

19

24.4

51.4

24.2

Companywide Retail Activity

Companywide Sales

37.0

26.9

+10.1

Increasing

110

48.7

39.6

11.7

Companywide Internet Sales

17.2

18.9

–1.7

Increasing

22

24.1

69.0

6.9

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

Company Outlook

23.7

7.6

+16.1

Improving

18

33.4

56.9

9.7

General Business Activity

20.7

13.8

+6.9

Improving

21

29.6

61.5

8.9

*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 30, 2018

Downloadable chart

Texas Retail Outlook Survey

May 30, 2018

Downloadable chart

Texas Service Sector Outlook Survey

May 30, 2018

Comments from Survey Respondents

These comments are from respondents' completed surveys and have been edited for publication.

Utilities

  • I've seen an increase in uncertainty related to the ongoing discussions of a possible trade war. Any such action would harm Houston's economy, and a slowdown in business activity would be likely. I expect to see some customers pulling back as they factor this into their production schedules.

Credit Intermediation and Related Activities

  • The first phase of our wind farm has been completed, with 64 windmills brought online. The construction crews have departed, and the second phase has been delayed based on rumors that getting parts for assembly out of China has become more difficult. I’m not sure if that is related to trade negotiations or financial troubles. The continued increase in oil production has benefited all of West Texas with more pressure for drilling and delivery of oil production, as well as demand for fracturing sand, especially with drilling increasing in the South Texas shale deposits. The continued drought conditions in areas of Texas and Oklahoma are impacting agriculture production, decreasing revenue projections combined with increased production cost.

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

  • We continue to monitor the aggressive commercial lending levels that we see from nonbank financial companies. We are near 2007 levels again.
  • The job market is getting tighter. The lack of rain is hurting agriculture.

Insurance Carriers and Related Activities

  • The Texarkana area is announcing a Regional Economic Development Initiative to coordinate all recruiting activities in northeast Texas. I think cities and counties working together will help the northeast Texas region.

Real Estate

  • On the margins, rising mortgage rates and inventory shortages are negatively impacting the residential real estate market. This adds uncertainty into our 2018 and 2019 projections.
  • Inventory is low, and there are lots of buyers. There are not enough properties.
  • There is a lot of uncertainty due to the Trump administration.

Professional, Scientific and Technical Services

  • Tweeted policies and directives from the president are causing rising tensions in the world, resulting in increasing uncertainty. Companies cannot go blindly forward under this situation so they “wait and see” what is going to happen. The “wait and see” time period is continuing to be extended and, therefore, extremely limited decisions are made to invest.
  • We rely heavily on H2B visa workers to support our labor efforts. We are blessed to get them this year, but many companies similar to ours did not. Unless changes are made to the H2B cap, it creates a huge amount of uncertainty for us going into next year. We will be unable to properly forecast and will have to be very conservative on capital investments.
  • Proposals for future work continue to be at historic lows, consistent with the downturn in design/construction activity. Construction activity continues to increase. I’m not sure why there is such a disconnect between the two, since historically (35+ years) there has been a direct correlation between proposals and activity.
  • Demand and performance across the board and all practices continue to be strong year to date. Assuming there is no interruptive event, like a trade war, NAFTA (North American Free Trade Agreement) termination, etc., our outlook for the remainder of the quarter/year looks strong.
  • Again, uncertainty about NAFTA is affecting our outlook.
  • Our backlog of consulting work has increased steadily since mid-February, and we do not see any indication of softening.
  • Rising interest rates are definitely affecting the level of activity in the residential sector of our business, and we feel it is only a matter of time before it has the same effect on the commercial side. Orders are slowing, and the general consensus is prices have risen too high. Hopefully, this is just an adjustment period, and the level of activity will increase in the coming months.

Administrative and Support Services

  • The quality of our full-time employees is currently at a high level. They want our company to grow and prosper.
  • Selling luxury travel is an emotional experience, a feel-good moment of luxury and self-indulgence. It requires advance planning at all levels, which we provide. Given the state of confusing new reports, the overstating of natural events and the unpredictable stabilities of governments around the world, the luxury traveler is hesitant. While the level of discretionary funds may have increased in the traveler’s bank account, the feel-good reasons to spend on luxury travel are squashed in today’s overload of information.
  • The current uncertainty is the cost of fuel. With the number of vehicles on the road, this could be significant.
  • Our nondestructive testing (NDT) services to machine shops has slowed significantly. We are not getting requests for quotations (RFQ) like we were in April and are not sure why. Our NDT services to the aviation sector have remained stable, with no changes seen at this time. Our NDT services to the industrial sectors (oil, gas) have remained flat since last year, with no increase seen as of yet. Our NDT services to the military have recently picked up, with more orders being fulfilled from previous approved RFQ submittals.
  • We are seeing good demand and increasing backlogs.
  • We have renegotiated subcontracts and will start two new corporate contracts in June.

Ambulatory Health Care Services

  • Revenue will increase due to increased activity from a couple of major clients and increased activity in a newly started line of business. Our number of employees will increase significantly as we ramp up the new line of business. We offer a summer help program where we expect 12–14 part-time employees and will be looking at a few part-time positions throughout the year as needed to cover workload. Wages and benefits costs continue to increase with the labor shortage and increased cost of mostly medical benefits. Capital expenditures will increase in the next three to four months related to building out additional space in our building. Our outlook is more favorable as a result of unexpected increased activity from existing clients.

Amusement, Gambling and Recreation Industries

  • Our challenges continue to revolve around issues that do not have a direct relationship to the actual business, i.e., property taxes, parking, paid sick leave for all employees, discussion of mandatory paid scheduling, shortage of outside contractors, i.e., plumbers, electricians, etc. We understand that many businesses in Austin are having the same issues as they are leaving or going out of business because they can no longer afford the rent increases.

Food Services and Drinking Places

  • We are in the final weeks of this milestone in our recovery from Hurricane Harvey.
  • The availability of qualified talent is getting harder and harder to find.

Repair and Maintenance

  • We were recently acquired by another company in the industry. We are implementing significant investment in capital, infrastructure and people, and an aggressive market promotion and penetration program.

Support Activities for Transportation

  • We are having great difficulty recruiting and retaining drivers.

Merchant Wholesalers, Durable Goods

  • The market in China has closed 100 percent for a full month. This has affected pricing and markets worldwide.

Merchant Wholesalers, Nondurable Goods

  • Tax benefits for our customers are taking hold. Customers are no longer afraid of what is coming down the pike from DC, a major difference since 2008. Our costs of goods are rising quickly, and we are struggling to pass them on. Consolidation in our industry is helping us out though.

Motor Vehicle and Parts Dealers

  • We continue to see wage pressure and inventories growing. We will be focusing on managing that growth to keep in line with sales expectations. We will be cautious hiring new or additional employees to our staff.

Building Material and Garden Equipment and Supplies Dealers

  • Things are picking up but we don't think by enough to justify any more interest rate hikes. We would like things to stabilize more after all these years of no growth.
  • The steel tariffs caused enormous disruption in the metal building industry in March and April. Prices for steel increased 25 percent in a couple of weeks. Price increases have slowed now, and most people in the industry believe we are at the peak of increases unless additional demand justifies higher prices. All of the price increases have been passed along to our customers, and demand is strong enough currently to maintain the price increase. The unknown is if there will be enough demand in six months to support today's higher prices.
  • Weather conditions have improved in May over April, leading to increased consumer demand for our products and services. Uncertainty over governmental trade, immigration and fiscal policies is an ongoing concern.

Clothing and Clothing Accessories Stores

  • Warmer seasonal temperatures have helped sell seasonal apparel. Sales of swimwear, shorts, T-shirts and sandals are all showing nice gains since the beginning of May. The strong dollar/weak peso is again hurting business in stores near the border.

 

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 Christopher Slijk at christopher.slijk@dal.frb.org.

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