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Texas Service Sector Activity Continues to Expand

Texas Service Sector Outlook Survey

Report in PDF

June 26, 2018

Texas Service Sector Activity Continues to Expand

What’s New This Month

For this month’s survey, Texas business executives were asked supplemental questions on technology, employment expectations and pricing power. 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 increase in June, although at a slightly 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 22.8 in May to 19.0 in June.

Labor market indicators reflected continued employment growth and longer workweeks this month. The employment index remained positive but fell slightly from 16.6 in May to 13.9 in June. The hours worked index remained largely unchanged at 10.7, its highest level since early 2012.

Perceptions of broader economic conditions continued to reflect optimism in June. The general business activity index advanced nearly four points to 22.4, its highest reading since the beginning of the year. The company outlook index held steady at 14.4.

Price pressures remained elevated, and wage pressures accelerated this month. The wages and benefits index rose from 22.6 in May to 24.2 in June, its highest reading since the survey began. The selling price index was unchanged at 15.4, significantly above its postrecession average.

Respondents’ expectations regarding future business conditions continued to reflect optimism. The future general business activity index advanced three points to 28.7, while the future company outlook index was unchanged at 27.6. Wage expectations remained elevated, as the future wage and benefits index held steady near an 11-year high. Indexes of future service sector activity, such as revenue and employment, also reflected continued optimism this month.

Texas Retail Outlook Survey

June 26, 2018

Retail Sales Rise Slightly in June but at Sharply Slower Pace

Retail sales growth abated in June, according to business executives responding to the Texas Retail Outlook Survey. The sales index plunged from 35.1 in May to 1.6 in June, indicating retail sales rose slightly in June but at a sharply slower rate. Inventories rose significantly, with the index surging over 20 points to 12.7.

Labor market measures indicated faster growth in retail employment and longer workweeks this month. The employment index rose slightly to 10.7, above its 12-month average. The hours worked index advanced four and a half points to 9.1.

Retailers’ perceptions of broader economic conditions remained positive in June but fell from May levels. The general business activity index was largely unchanged at 13.0. The company outlook index declined from 13.2 to 6.1.

Retail price and wage pressures increased this month. The selling prices index moved up from 24.6 in May to 27.0 in June. The wages and benefits index rose over five points to 29.5, its highest reading on record, with over one-third of respondents noting an increase in June labor costs.

Retailers’ perceptions of future broader economic conditions indicated continued optimism in June. The index of future general business activity rose slightly to 23.2. The index of future company outlook fell but remained positive, declining from 23.7 in May to 13.9 in June. Indexes of future retail sector activity picked up, with the future sales index increasing to an eight-month high.

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: July 31, 2018

Data were collected June 12–20, and 215 Texas service sector and 50 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

June 26, 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)
IndicatorJun IndexMay IndexChangeIndicator Direction*Trend** (Months)% Reporting Increase% Reporting
No Change
% Reporting Decrease

Revenue

19.0

22.8

–3.8

Increasing

102

34.2

50.6

15.2

Employment

13.9

16.6

–2.7

Increasing

100

22.8

68.3

8.9

Part–Time Employment

4.3

5.6

–1.3

Increasing

5

8.3

87.7

4.0

Hours Worked

10.7

10.4

+0.3

Increasing

20

13.7

83.3

3.0

Wages and Benefits

24.2

22.6

+1.6

Increasing

109

26.3

71.6

2.1

Input Prices

32.2

32.0

+0.2

Increasing

110

33.2

65.8

1.0

Selling Prices

15.4

15.4

0.0

Increasing

28

18.1

79.1

2.7

Capital Expenditures

14.4

18.4

–4.0

Increasing

106

18.9

76.6

4.5

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

Company Outlook

14.4

15.4

–1.0

Improving

24

20.8

72.9

6.4

General Business Activity

22.4

18.5

+3.9

Improving

22

25.5

71.4

3.1

IndicatorJun IndexMay IndexChangeIndicator Direction*Trend** (Months)% Reporting Increase% Reporting
No Change
% Reporting Decrease

Outlook Uncertainty†

6.9

5.3

+1.6

Increasing

5

16.9

73.1

10.0

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

Revenue

44.6

50.9

–6.3

Increasing

112

52.5

39.6

7.9

Employment

28.9

30.9

–2.0

Increasing

111

35.8

57.3

6.9

Part–Time Employment

9.5

13.2

–3.7

Increasing

72

13.9

81.7

4.4

Hours Worked

10.7

14.4

–3.7

Increasing

22

14.8

81.1

4.1

Wages and Benefits

50.4

50.6

–0.2

Increasing

138

52.7

45.0

2.3

Input Prices

45.4

47.3

–1.9

Increasing

138

47.4

50.7

2.0

Selling Prices

35.8

36.7

–0.9

Increasing

110

39.7

56.4

3.9

Capital Expenditures

28.4

26.9

+1.5

Increasing

111

33.7

61.1

5.3

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

Company Outlook

27.6

26.8

+0.8

Improving

28

35.6

56.3

8.0

General Business Activity

28.7

25.7

+3.0

Improving

28

32.2

64.3

3.5

Texas Retail Outlook Survey

June 26, 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)
IndicatorJun IndexMay IndexChangeIndicator Direction*Trend** (Months)% Reporting Increase% Reporting
No Change
% Reporting Decrease
Retail Activity in Texas

Sales

1.6

35.1

–33.5

Increasing

2

30.2

41.2

28.6

Employment

10.7

8.4

+2.3

Increasing

10

17.9

74.9

7.2

Part–Time Employment

8.2

6.7

+1.5

Increasing

2

10.2

87.8

2.0

Hours Worked

9.1

4.6

+4.5

Increasing

12

14.3

80.5

5.2

Wages and Benefits

29.5

24.1

+5.4

Increasing

88

34.7

60.1

5.2

Input Prices

41.3

32.3

+9.0

Increasing

29

43.7

53.9

2.4

Selling Prices

27.0

24.6

+2.4

Increasing

15

35.9

55.2

8.9

Capital Expenditures

12.0

13.0

–1.0

Increasing

23

16.0

80.0

4.0

Inventories

12.7

–8.6

+21.3

Increasing

1

28.2

56.3

15.5

Companywide Retail Activity

Companywide Sales

4.2

28.0

–23.8

Increasing

2

25.1

54.0

20.9

Companywide Internet Sales

17.8

15.9

+1.9

Increasing

2

25.8

66.2

8.0

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

Company Outlook

6.1

13.2

–7.1

Improving

15

18.8

68.6

12.7

General Business Activity

13.0

14.9

–1.9

Improving

2

20.2

72.6

7.2

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

Outlook Uncertainty†

6.1

–4.8

+10.9

Increasing

1

20.4

65.3

14.3

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

Sales

43.5

42.8

+0.7

Increasing

112

51.7

40.1

8.2

Employment

23.6

16.3

+7.3

Increasing

13

30.8

62.0

7.2

Part–Time Employment

9.7

2.3

+7.4

Increasing

4

12.7

84.3

3.0

Hours Worked

8.4

6.2

+2.2

Increasing

11

13.4

81.6

5.0

Wages and Benefits

50.9

41.5

+9.4

Increasing

114

52.5

45.8

1.6

Input Prices

47.9

35.5

+12.4

Increasing

110

50.0

47.9

2.1

Selling Prices

45.8

37.2

+8.6

Increasing

110

47.9

50.0

2.1

Capital Expenditures

20.8

15.6

+5.2

Increasing

21

27.1

66.7

6.3

Inventories

9.1

0.2

+8.9

Increasing

20

24.0

61.1

14.9

Companywide Retail Activity

Companywide Sales

37.1

37.0

+0.1

Increasing

111

46.5

44.1

9.4

Companywide Internet Sales

24.2

17.2

+7.0

Increasing

23

30.3

63.6

6.1

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

Company Outlook

13.9

23.7

–9.8

Improving

19

27.1

59.7

13.2

General Business Activity

23.2

20.7

+2.5

Improving

22

29.5

64.2

6.3

*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.

†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

June 26, 2018

Downloadable chart

Texas Retail Outlook Survey

June 26, 2018

Downloadable chart

Texas Service Sector Outlook Survey

June 26, 2018

Comments from Survey Respondents

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

Utilities

  • We continue to see an increase in uncertainty due to the ongoing trade disputes.

Broadcasting (Except Internet)

  • We experienced a one-month spike in sales for June 2018; however, our pacing for sales for the next six months is running slower than planned. We are increasing wages in July to retain employees as the cost of living (housing) in West Texas has increased, and competition for employees continues to increase.

Credit Intermediation and Related Activities

  • The demand for frack sand has been very steady and keeps the sand plants as well as trucking very strong. The prospects of a new cement plant are looking good with licensing by the TCEQ (Texas Commission on Environmental Quality). This will provide an increase in tax revenue during construction.

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

  • My company has taken on investment, which provides us cash to invest and grow, pay employees more, etc.

Insurance Carriers and Related Activities

  • Many in the general public have a plan. That plan is there is no plan, and their retirement and businesses are at risk.

Real Estate

  • Border and immigration issues are still a drag on the market, and the constant rhetoric on trade I'm sure is going to slow consumer confidence, which invariably slows retail activity. I think if we can settle the trade war and NAFTA (North American Free Trade Agreement) issues soon, consumer confidence will pick up, and we should have a strong holiday season. If not, I think those issues will further dampen confidence and the retail environment.
  • Business is good. Inventories are still low. Interest rates are going up, pushing buyers to find a house. There is more confidence with the economy and President Trump.

Professional, Scientific and Technical Services

  • We are somewhat concerned about continued trade-war rhetoric, but assume for now it is mostly that and some of the current tenor will shift in the coming months.
  • Steel and aluminum tariffs are causing increases in construction costs, leading to less construction activity.
  • Although the Texas economy is still doing very well, the real estate industry is being impacted by a slow down. Prices have risen to levels that are causing most investors to step back and take a longer look before entering into to a contract, and residential houses are sitting on the market much longer than they were a year ago. It is still a great market, but the transaction volume is headed lower.
  • We continue to see strength in real estate. Mergers and acquisitions activity has picked up.
  • The legal services sector and demand for legal services is up year over year and year to date for us, even above projections. While demand has been strong, the commencement of trade wars, the election in Mexico and the rise of interest rates cause us concern.
  • We are doing great. We have not done this well since the 1990s. Maybe it is the Trump effect, but we will take it.
  • Proposals for future work continue to be at historic lows. There is very little activity in the small-to-medium projects. A few large-to-very-large projects are accounting for our activity and profit.
  • Business seems to be trending up other than the seasonal slowdown due to summer; otherwise, looking out six to 12 months, we are optimistic about the general state of the market and anticipate continued improvement for two to three years. The concern is that supply would outpace demand and, thus, create a market imbalance as U.S. production has continued to increase.
  • We expect some consulting work in July. We are not sure if this means there is a significant pickup in project activity.

Management of Companies and Enterprises

  • Increased competition by nonregulated and nontaxed companies is beginning to put pressure on regulated banks to loosen standards. The nonregulated credit unions and farm credit system are doing crazy loans, terms and collateral.
  • Overregulation is still hurting us.

Administrative and Support Services

  • We are seeing very strong demand.
  • The markets are growing but so are the number of new competitors for both my company and my customers. As a result of competition, some customers—restaurants—are hesitant to commit to new services or even continue existing services. The real estate multifamily market is experiencing similar competitive challenges.
  • The corporate aviation sector has softened. No major inspections or maintenance activities have been scheduled or quoted on since early May. We have no idea why it has changed. The oil and gas equipment services sector has remained flat, with a small increase in RFQs (requests for quotation) being submitted to us.
  • My biggest fear now is when the bubble is going to burst.

Educational Services

  • I'm happy with the regulatory environment. I'm happy with reduced regulation. I'm happy with business and personal taxes being reduced.

Ambulatory Health Care Services

  • The drought situation in the Texas Panhandle will now affect summer crops, reducing yields and increasing cost due to the need to irrigate. A lack of grazing will impact local cattlemen. Commodity pricing on agriculture as well as oil and gas look to all be down. This could hurt fall/winter revenues as a significant portion of our revenue is derived from elective surgeries. Add to that the mid-term elections and the next six to 12 months could see a downturn in the local economy.

Hospitals

  • State unfunded mandates have increased on rural health systems along with a reduction in commercial payments; this is concerning to independent rural health systems.

Amusement, Gambling and Recreation Industries

  • The biggest issues we have are ones that have no relationship to the actual running of the business. The property values in Austin continue to skyrocket. Our property taxes for next year are projected to increase by as much as $40,000. In our world, that is a lot of extra martinis to sell. In addition, we have been told that our health insurance rates could go up as much as 35 percent. Part of that is due to a cancer claim, the other part of the increase is simply due to the ACA (Affordable Care Act) and rising health care costs. All of this is at a time when the unemployment rate in Austin is about 2.8 percent. We are calculating that we will need to raise wages 3.5–4 percent just to hope to keep our current staff. It is a challenging time!

Accommodation

  • Labor continues to be very difficult to find. The cost of goods is starting to become worrisome. Interest rates are climbing slowly. On the flip side, lower taxes are beneficial, but I believe we will see higher deficits in the future. That equates to higher operating cost, thus higher prices. I don’t believe our federal and state governments have a clue about our local situation.

Food Services and Drinking Places

  • We are seeing progress in reopening after Hurricane Harvey.
  • The cost of health insurance has increased again, and the cost of labor will add to a decrease in profits this year.

Personal and Laundry Services

  • We are still having trouble finding qualified employees. I am having to offer signing bonuses as well as referral bonuses for new employees.

Merchant Wholesalers, Durable Goods

  • We are hiring technology-related personnel for newly created positions to help with the digital transformation of our business. We expect the level of business activity to continue to increase in the coming months, both through traditional sales channels as well as through the internet.
  • The construction sector in Texas continues to be strong and shows no weakening in the near future (next 18 months). Banks appear to be aggressive in lending opportunities, and we are seeing continued steady growth in projects being started. Highway lettings are strong and appear to be aggressive in the state as well.

Merchant Wholesalers, Nondurable Goods

  • The Fed’s most recent interest increase, with the thought that the Fed needed to be sure it had room to decrease rates again in the event there was a downturn, may have well achieved the opposite and precipitated a downturn. Leaving the rate alone and waiting is a much better choice considering all events—domestic and international.

Motor Vehicle and Parts Dealers

  • We continue to experience an increase in inventory financing costs along with pressure on retail margins.
  • If the steel and aluminum tariffs are left to stand, then there may be some issues with price and competitiveness. The tariff situation needs to be rectified soon before too much damage is done on both sides of the issue. Both sides need to compromise now.
  • Our retail sales have decreased, but our commercial sales increased. Margins continue to decline as expenses increase. Net profits are down. Prime rate increases negatively impact our business model.
  • We see how the economy appears to be improving and the unemployment rate continues to decline; however, pricing on new vehicles continues to rise. It is difficult to see how the current vehicle prices will be sustainable for the dual-income working family.
  • We are in the business of selling and servicing imported vehicles. The tariffs currently being discussed will destroy our business if enacted.

Building Material and Garden Equipment and Supplies Dealers

  • We continue to experience upward pressure on labor, transportation and product costs. Since these cost increases do not appear to be seasonal or temporary, we're planning to enact retail price increases in response. Since a significant amount of Texas economic activity depends on trade, there is increasing concern over government trade policies and the response of trading partners. In addition, continuing interest rate increases are impacting our more leveraged suppliers. Finally, energy cost increases reduce consumer disposable income and add to general inflationary expectations.
  • General business activity is good but hard to keep up with because of labor shortages. Growth is limited because we can't find people who want to work or can pass a drug test. We are being conservative on the jobs we take so we can maintain our schedules and quality along with not putting too much pressure on our current workforce.

Clothing and Clothing Accessories Stores

  • Apparel sales continue to be soft relative to nonapparel.

 

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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