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Texas Service Sector Activity Expands at Accelerated Pace

Texas Service Sector Outlook Survey

Report in PDF

February 26, 2019

Texas Service Sector Activity Expands at Accelerated Pace

What’s New This Month

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

Texas service sector activity accelerated 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, rose from 14.9 in January to 19.2 in February.

Labor market indicators reflected faster employment growth and longer workweeks this month. The employment index rose nearly three points to 9.7, while the hours worked index fell slightly from 6.6 in January to 5.0 in February.

Perceptions of broader business conditions strengthened, and measures of uncertainty eased this month. The general business activity index rebounded to positive territory at 2.0, while the company outlook index rose nearly five points to 6.1. The outlook uncertainty index fell to 8.7, its lowest value since last October.

Price and wage pressures were largely unchanged this month. The wages and benefits index held steady at 19.1, while the selling prices and input prices indexes were mostly flat at 8.0 and 20.6, respectively.

Respondents’ expectations regarding future business conditions improved significantly compared with January. The future general business activity index surged nearly 12 points to 11.0, while the future company outlook index picked up almost 10 points to 17.4. Other indexes of future service sector activity, such as revenue and capital expenditures, also strengthened and suggested a more optimistic view of the next six months.

Texas Retail Outlook Survey

February 26, 2019

Retail Sales Strengthen

Retail sales accelerated in February, according to business executives responding to the Texas Retail Outlook Survey. The sales index increased from 6.5 in January to 9.2 in February. Inventory growth slowed but remained robust, with the inventories index declining from 19.0 to 13.6.

Retail labor market indicators suggested stronger employment growth and steady workweek length. The employment index rose from 0.1 in January to 6.3 in February, while the hours worked index declined to 0.6, its lowest reading since mid-2017.

Retailers’ perceptions of broader business conditions remained soft in February. The general business activity index increased over six points but remained negative at -5.8, suggesting that respondents on net have a worsened view of current activity.  The company outlook index rebounded into positive territory, rising from -8.3 to 0.5.

Retail price pressures eased, while wage pressures increased this month. The selling prices index fell from 14.7 in January to 11.0 in February, while the input prices index plummeted to a three-year low of 6.1. The wages and benefits index increased nearly three points to 11.1 in February.

Retailers’ perception of future business conditions improved notably this month. The future general business activity index spiked nearly 28 points to 7.5, while the future company outlook index jumped from -16.5 to 7.9, its highest reading since last October. Other indexes of future retail sector activity, such as sales and employment, also saw significant improvement and were in solidly positive territory.

The Texas Retail Outlook Survey is a component of the Texas Service Sector Outlook Survey that uses information only from respondents in the retail and wholesale sectors.

Next release: March 26, 2019

Data were collected February 12–20, and 222 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

February 26, 2019

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

19.2

14.9

+4.3

Increasing

110

29.4

60.4

10.2

Employment

9.7

7.0

+2.7

Increasing

108

15.9

77.9

6.2

Part–Time Employment

1.7

–0.1

+1.8

Increasing

1

6.5

88.7

4.8

Hours Worked

5.0

6.6

–1.6

Increasing

28

8.5

88.0

3.5

Wages and Benefits

19.1

18.7

+0.4

Increasing

117

21.4

76.3

2.3

Input Prices

20.6

20.1

+0.5

Increasing

118

22.6

75.4

2.0

Selling Prices

8.0

7.9

+0.1

Increasing

36

10.0

88.1

2.0

Capital Expenditures

10.5

9.8

+0.7

Increasing

114

15.0

80.4

4.5

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

6.1

1.3

+4.8

Improving

2

12.2

81.7

6.1

General Business Activity

2.0

–4.8

+6.8

Improving

1

11.2

79.6

9.2

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

Outlook Uncertainty†

8.7

14.0

–5.3

Increasing

13

17.9

73.0

9.2

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

39.2

37.3

+1.9

Increasing

120

47.7

43.8

8.5

Employment

23.7

23.8

–0.1

Increasing

119

32.7

58.3

9.0

Part–Time Employment

8.9

6.6

+2.3

Increasing

80

13.8

81.3

4.9

Hours Worked

9.6

7.9

+1.7

Increasing

30

12.8

84.0

3.2

Wages and Benefits

42.4

40.8

+1.6

Increasing

146

45.2

52.0

2.8

Input Prices

41.6

39.9

+1.7

Increasing

146

43.7

54.2

2.1

Selling Prices

29.2

28.1

+1.1

Increasing

118

34.3

60.7

5.1

Capital Expenditures

27.7

24.3

+3.4

Increasing

119

32.4

62.9

4.7

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

17.4

7.6

+9.8

Improving

36

26.4

64.6

9.0

General Business Activity

11.0

–0.6

+11.6

Improving

1

21.3

68.4

10.3

Texas Retail Outlook Survey

February 26, 2019

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

9.2

6.5

+2.7

Increasing

10

24.1

61.0

14.9

Employment

6.3

0.1

+6.2

Increasing

2

11.4

83.5

5.1

Part–Time Employment

4.1

–11.1

+15.2

Increasing

1

8.2

87.8

4.1

Hours Worked

0.6

1.9

–1.3

Increasing

20

4.8

91.0

4.2

Wages and Benefits

11.1

8.3

+2.8

Increasing

96

17.5

76.1

6.4

Input Prices

6.1

15.0

–8.9

Increasing

37

13.9

78.3

7.8

Selling Prices

11.0

14.7

–3.7

Increasing

23

17.5

76.0

6.5

Capital Expenditures

10.0

0.0

+10.0

Increasing

1

14.0

82.0

4.0

Inventories

13.6

19.0

–5.4

Increasing

9

27.8

58.0

14.2

Companywide Retail Activity

Companywide Sales

5.0

3.5

+1.5

Increasing

10

17.3

70.4

12.3

Companywide Internet Sales

3.9

7.1

–3.2

Increasing

10

10.8

82.3

6.9

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

0.5

–8.3

+8.8

Improving

1

10.4

79.7

9.9

General Business Activity

–5.8

–12.1

+6.3

Worsening

3

5.4

83.4

11.2

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†

6.0

12.7

–6.7

Increasing

9

14.0

78.0

8.0

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

24.9

2.2

+22.7

Increasing

2

37.0

50.9

12.1

Employment

3.3

–1.6

+4.9

Increasing

1

12.4

78.6

9.1

Part–Time Employment

3.6

–2.5

+6.1

Increasing

1

10.2

83.2

6.6

Hours Worked

0.5

–7.3

+7.8

Increasing

1

5.1

90.3

4.6

Wages and Benefits

24.5

17.6

+6.9

Increasing

122

30.9

62.7

6.4

Input Prices

26.6

16.4

+10.2

Increasing

118

32.7

61.2

6.1

Selling Prices

27.1

19.2

+7.9

Increasing

118

37.5

52.1

10.4

Capital Expenditures

16.3

9.2

+7.1

Increasing

2

20.4

75.5

4.1

Inventories

–14.1

6.7

–20.8

Decreasing

1

15.2

55.5

29.3

Companywide Retail Activity

Companywide Sales

20.3

9.0

+11.3

Increasing

119

33.2

53.9

12.9

Companywide Internet Sales

12.5

5.1

+7.4

Increasing

31

21.9

68.8

9.4

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

7.9

–16.5

+24.4

Improving

0

16.6

74.7

8.7

General Business Activity

7.5

–20.0

+27.5

Improving

1

16.7

74.1

9.2

*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 26, 2019

Downloadable chart

Texas Retail Outlook Survey

February 26, 2019

Downloadable chart

Texas Service Sector Outlook Survey

February 26, 2019

Comments from Survey Respondents

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

Utilities

  • There continues to be a high level of uncertainty around the trade tariffs with China and the March 1 deadline. It doesn't appear that a deal will be in place before the tariffs are increased. Until that is resolved, it will be difficult to make long-term decisions that may be impacted by the tariffs.

Pipeline Transportation

  • Our increase in revenue and employees is associated with completion of multiyear construction projects and placing these assets in service as opposed to stronger demand from an increasing economy.

Support Activities for Transportation

  • Mexico is always a concern for all binational companies like ours. The new Mexican administration is still changing policies, and we are waiting to see if the imports may be negatively affected.
  • We saw a drop in demand from what was expected in February. We are unsure whether or not that is seasonal/weather-related or a sign that it could be something longer term.

Publishing Industries (Except Internet)

  • Forward-looking geopolitical and economic uncertainties continue to be a main factor in business risk assessment. Some relief or resolution domestically seems to be on the horizon, but euro trends are escalating in many countries. Asia uncertainty is more tied to U.S.–China discussions and results. While international is of less concern than domestic business for us, it matters as global business and fiscal policies are connected like a circuit.

Credit Intermediation and Related Activities

  • The banking environment is currently being influenced by the various uncertainty of the economic forecast and the disruption of government conflicts. The local economy is being impacted by three sand-mining companies’ scheduled closings that are reported to displace approximately 360 employees. This has already reduced the substantial number of truckers hauling for the companies closing their mining operations. The construction of a new 64-tower wind farm will temporarily offset the loss of jobs in our area and will help fill the property tax values in the future that are anticipated to be lost from the mining companies closing operations.

Real Estate

  • There is some concern that the political and media noise will become a drag on otherwise good economic fundamentals.

Professional, Scientific and Technical Services

  • Orders for residential and commercial transactions were down 15–20 percent year over year for the month of January. Orders for the month of February have improved but are still down year over year. We think residential orders will continue to improve through the summer, but we have definitely seen the overall market begin to shows signs of weakening.
  • Real estate remains very active.
  • The governmental shutdown has everyone skittish. Stability is not present. Brexit is still an issue.
  • It appears that more of our clients are beginning to take marketing in-house. We'd prefer they rely on us obviously. Clients still seem to have a significant need for more services, yet their budgets are shrinking.
  • We have a severe shortage of entry-level labor. We have in the past used the H2B visa program to supplement our seasonal needs. Much like last year, there are nearly four times more applicants than available visas, and we will not be receiving our visas. As such, growth this year will be severely limited unless Congress enacts some substantial form of “cap relief.”
  • Because of the government shutdown, some work performed for clients has been delayed but should not result in permanent work reduction or fees.
  • We’re still very concerned about the confluence of events at the end of the first quarter related to China trade talks, Brexit and whether we will continue with the political upheavals in Washington. If all that clears, we feel pretty good about the market demand for the remainder of 2019. If it doesn’t, then we believe the rest of 2019 could be tough. That said, we continue to see a slowdown in real estate activity and a pickup in restructuring work. We also have been a bit surprised by increased activity on the bankruptcy side of our practice.
  • Clients are suffering from tariffs, the government shutdown and uncertainty of interest rates on the federal level. On the Texas level, the lack of clear rules and regulations for some of our clients’ industries is causing them to reconsider expansion in Texas, and thus there is a local slowdown of their business. Slowdown of our clients’ business is a slowdown for our business.
  • The government shutdown has impacted thousands of people not mentioned in the news. A few contractors (such as janitors) are mentioned, but the people who wait tables, serve coffee and work at those restaurants will never recoup the money that was not spent during the shutdown. Additionally, the government workers who eventually get paid will have lower incomes in 2018 but will see a significant bump in 2019, which means a higher tax bill (with possible bumps in brackets).

Administrative and Support Services

  • Interest rates seem to have stabilized for a while. Any relief of uncertainty should be welcome for the housing market.
  • We have had very bad weather conditions.

Educational Services

  • We had a successful sale of additional bonds. More capital expansion projects are underway.
  • I continue to believe that trade policy (i.e., China) will be resolved at some point. I think the Federal Reserve will take a more neutral stance with regard to interest rates looking forward. I remain very optimistic.

Ambulatory Health Care Services

  • We seem to be doing better than our competitors.
  • Return of drought to the area could adversely affect income from ag sources, and potential wildfires could create very large losses. This drop in available funds could encourage patients to delay medical care.
  • This month’s economics limerick: February had news of no Queens HQ2 for Amazon; risk of the feared inverted yield curve long gone; oil priced by irrational heads putting pressure on crack spreads; dozen running for pres, one even named Julian.

Hospitals

  • Increased unfunded mandates and decreased reimbursements continue to paralyze independent rural health systems. We are going to have to transform delivery to survive.
  • Activity is growing, but reimbursements are deteriorating. We see higher costs and lower revenue despite growing volume.

Nursing and Residential Care Facilities

  • Fifty percent of our total revenue comes from state and federal contracts. The state legislature has included a rate increase for state-run facilities and has not increased the private-run facilities’ reimbursement rates since 2013. That increase did not offset the decreases we got in 2011 and 2012. This is making it extremely difficult to hire qualified employees capable of adherence to more stringent requirements.
  • The labor market for both nurses and nurse aides has really tightened as the demand for these positions has increased, while at the same time the labor pool has shrunk. Along with many of our competing nursing homes and assisted-living facilities, we are being forced to offer large sign-on bonuses to attract any job candidates.

Amusement, Gambling and Recreation Industries

  • The major issue is the lack of qualified employees. We have remained relatively stable because our workforce has been with us for years, and we offer lots of benefits. However, when we go to hire new people, it is a significant challenge—first, even to attract people for interviews and then to get them to take the job and to actually show up once they have committed. This is mainly due to counteroffers. Also the food service industry is competing with construction, retail, transportation and entry-level high-tech for employees. It is very challenging. Many of the smaller businesses are giving up, as it is just too hard.

Accommodation

  • I was concerned by Washington’s ongoing dysfunctionality last month, and I still have that same concern. In spite of Washington, our economy locally does seem to be moving forward. However, our pool of labor is very tight and seemingly getting tighter. At some point, Washington has got to address the immigration issue in its totality.

Food Services and Drinking Places

  • The government shutdown had a negative effect on restaurant sales.

Merchant Wholesalers, Durable Goods

  • The ship still looks to be steaming ahead without much in the way of bad news. The economy continues to be strong and steady.
  • Business with China has started to pick up again. Mexico is still lagging.

Merchant Wholesalers, Nondurable Goods

  • Things have flattened out year over year. Interest rate increases will affect how much inventory we have on the floor. We will need to be more creative on which items we are going to stock.

Motor Vehicle and Parts Dealers

  • Our better results and outlook are due to new and better management rather than an improvement in local economic activity.
  • Tariffs continue to be a looming threat for the auto business and could raise consumer prices significantly.
  • Prices are increasing and margins declining. Manufacturers will continue to increase dealers’ cost of inventory. Operating expenses continue to increase. Profits will decline from 2018, and 2018 was worse than 2017.
  • February will likely not be as profitable as January due to delivery of a large order in January.
  • Any new tariffs related to the auto industry would completely change my opinion of business activity in the near future.

Building Material and Garden Equipment and Supplies Dealers

  • Retail sales conditions have improved with the end of the government shutdown. Recession worries are still out there, but the pause in Fed rate hikes suggests at least some policymakers are on top of things.

Clothing and Clothing Accessories Stores

  • Our sales have been impacted by severe weather in many parts of the country.

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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