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Texas Service Sector Activity Accelerates Slightly

Texas Service Sector Outlook Survey

Report in PDF

April 30, 2019

Texas Service Sector Activity Accelerates Slightly

What’s New This Month

For this month’s survey, Texas business executives were asked supplemental questions on revenue, income taxes and drivers of uncertainty. 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.

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 accelerated slightly in April, 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 12.3 in March to 13.9 in April.

Labor market indicators reflected steady employment growth and slightly longer workweeks this month. The employment index held flat at 11.6, while the hours worked index slipped over three points but remained positive at 2.4 in April.

Perceptions of broader business conditions rebounded, although measures of uncertainty remained elevated this month. The general business activity index surged over 10 points to 5.7 in April, while the company outlook index similarly rebounded into positive territory, rising six points to 5.5. The outlook uncertainty index ticked up from 11.6 to 12.8.

Price and wage pressures eased modestly this month. The wages and benefits index dropped from 22.8 in March to 20.3 in April, while the selling prices index dipped slightly to 10.4, and the input prices index fell over four points to 25.7.

Respondents’ expectations regarding future business conditions were more optimistic overall compared with March. The future general business activity index rose eight points to 12.3, while the future company outlook index picked up from 13.0 in March to 19.4 in April—a six-month high. Other indexes of future service sector activity, such as revenue and employment, edged down but remained elevated, reflecting solid expectations of further growth over the next six months.

Texas Retail Outlook Survey

April 30, 2019

Retail Sales Rebound

Retail sales accelerated strongly in April, according to business executives responding to the Texas Retail Outlook Survey. The sales index surged from -2.7 in March to 13.2 in April, its highest value since last October. Inventories declined, as the inventories index plummeted over 21 points to -5.5.

Retail labor market indicators were mixed, pointing to a pickup in employment but a slightly shorter workweek length. The employment index rose nine points to 8.5, while the hours worked index moved up slightly but remained negative at -2.2.

Retailers’ perceptions of broader business conditions continued to worsen in April, but pessimism eased. The general business activity index increased eight points but remained negative at -10.7. Similarly, the company outlook index rose from -10.4 in March to -5.2 in April, the fifth consecutive month of net weakening in firms’ outlooks.

Retail price pressures were mixed, while wage pressures eased slightly this month. The selling prices index increased from 7.2 to 10.9, while the input prices index fell over eight points to 10.9. The wages and benefits index softened from 21.6 in March to 18.3 in April, though this is still elevated compared with historical norms.

Retailers’ perception of future business conditions improved this month. The future general business activity index rebounded from -6.6 in March to 2.5 in April, while the future company outlook index rose nearly 10 points to a six-month high of 9.2. Other indexes of future retail sector activity, such as sales and employment, dropped but remained in firmly positive territory, reflecting overall optimism over the next six months.

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: May 29, 2019

Data were collected April 16–24, and 230 Texas service sector and 55 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

April 30, 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)
IndicatorApr IndexMar IndexChangeIndicator Direction*Trend** (Months)% Reporting Increase% Reporting
No Change
% Reporting Decrease

Revenue

13.9

12.3

+1.6

Increasing

113

30.1

53.6

16.2

Employment

11.6

11.6

0.0

Increasing

110

18.6

74.4

7.0

Part–Time Employment

2.8

1.8

+1.0

Increasing

3

8.9

85.0

6.1

Hours Worked

2.4

5.6

–3.2

Increasing

30

8.0

86.3

5.6

Wages and Benefits

20.3

22.8

–2.5

Increasing

119

21.7

76.8

1.4

Input Prices

25.7

30.1

–4.4

Increasing

120

28.0

69.7

2.3

Selling Prices

10.4

11.9

–1.5

Increasing

38

16.0

78.4

5.6

Capital Expenditures

17.5

16.5

+1.0

Increasing

116

22.8

72.0

5.3

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

Company Outlook

5.5

–0.5

+6.0

Improving

1

16.6

72.3

11.1

General Business Activity

5.7

–4.4

+10.1

Improving

1

16.9

71.9

11.2

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

Outlook Uncertainty†

12.8

11.6

+1.2

Increasing

15

23.7

65.5

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

41.3

43.3

–2.0

Increasing

122

49.1

43.1

7.8

Employment

19.4

25.3

–5.9

Increasing

121

29.2

61.0

9.8

Part–Time Employment

4.8

6.1

–1.3

Increasing

82

12.4

80.0

7.6

Hours Worked

7.1

6.8

+0.3

Increasing

32

11.5

84.1

4.4

Wages and Benefits

37.7

39.3

–1.6

Increasing

148

40.7

56.3

3.0

Input Prices

38.1

43.9

–5.8

Increasing

148

38.5

61.1

0.4

Selling Prices

26.8

30.8

–4.0

Increasing

120

29.9

67.0

3.1

Capital Expenditures

23.3

22.3

+1.0

Increasing

121

28.9

65.6

5.6

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

Company Outlook

19.4

13.0

+6.4

Improving

4

28.4

62.6

9.0

General Business Activity

12.3

4.3

+8.0

Improving

3

23.1

66.0

10.8

Texas Retail Outlook Survey

April 30, 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)
IndicatorApr IndexMar IndexChangeIndicator Direction*Trend** (Months)% Reporting Increase% Reporting
No Change
% Reporting Decrease
Retail Activity in Texas

Sales

13.2

–2.7

+15.9

Increasing

1

23.6

65.9

10.4

Employment

8.5

–0.5

+9.0

Increasing

1

12.2

84.1

3.7

Part–Time Employment

5.6

1.8

+3.8

Increasing

3

11.3

83.0

5.7

Hours Worked

–2.2

–4.0

+1.8

Decreasing

5

2.9

92.0

5.1

Wages and Benefits

18.3

21.6

–3.3

Increasing

98

21.1

76.1

2.8

Input Prices

10.9

19.0

–8.1

Increasing

39

17.2

76.5

6.3

Selling Prices

10.9

7.2

+3.7

Increasing

25

18.6

73.7

7.7

Capital Expenditures

14.8

7.2

+7.6

Increasing

3

18.5

77.8

3.7

Inventories

–5.5

15.7

–21.2

Decreasing

1

19.0

56.5

24.5

Companywide Retail Activity

Companywide Sales

8.8

–1.2

+10.0

Increasing

1

22.1

64.6

13.3

Companywide Internet Sales

7.1

2.7

+4.4

Increasing

12

16.1

74.9

9.0

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

Company Outlook

–5.2

–10.4

+5.2

Worsening

5

8.4

78.0

13.6

General Business Activity

–10.7

–18.7

+8.0

Worsening

5

5.0

79.4

15.7

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

Outlook Uncertainty†

14.5

11.1

+3.4

Increasing

11

21.8

70.9

7.3

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

25.6

27.6

–2.0

Increasing

4

36.7

52.2

11.1

Employment

5.0

9.0

–4.0

Increasing

23

16.4

72.3

11.4

Part–Time Employment

0.3

2.5

–2.2

Increasing

3

9.8

80.7

9.5

Hours Worked

–1.7

–4.5

+2.8

Decreasing

6

8.4

81.5

10.1

Wages and Benefits

27.9

29.9

–2.0

Increasing

124

32.2

63.5

4.3

Input Prices

24.0

30.8

–6.8

Increasing

120

25.9

72.2

1.9

Selling Prices

24.5

23.5

+1.0

Increasing

120

24.5

75.5

0.0

Capital Expenditures

9.5

13.4

–3.9

Increasing

4

17.0

75.5

7.5

Inventories

1.5

–0.5

+2.0

Increasing

1

19.4

62.8

17.9

Companywide Retail Activity

Companywide Sales

26.4

23.4

+3.0

Increasing

121

33.6

59.2

7.2

Companywide Internet Sales

26.3

27.0

–0.7

Increasing

33

28.9

68.4

2.6

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

Company Outlook

9.2

–0.3

+9.5

Improving

0

18.0

73.2

8.8

General Business Activity

2.5

–6.6

+9.1

Improving

1

12.4

77.7

9.9

*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

April 30, 2019

Downloadable chart

Texas Retail Outlook Survey

April 30, 2019

Downloadable chart

Texas Service Sector Outlook Survey

April 30, 2019

Comments from Survey Respondents

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

Data Processing, Hosting and Related Services

  • Is it difficult to find really good talent. Our searches take three times longer than they did a year or two ago. We are not sure if increasing our benefits package has helped us with attracting new talent, but it seems to have helped with retention of our current team members.

Credit Intermediation and Related Activities

  • As a result of the layoffs from the frac sand mines and the complete closing of several sand mines, the volume of retail sales has dropped, especially fuel sales, due to the impact of substantially reduced sand- trucking transportation. There is concern over the potential closing of the short rail to Brady due to the reduction of sand materials being shipped out by rail. I would say half of the 360+ employees are being employed by the West Texas sand-mining companies and 44 of the employees are being hired by a California company to mine surface sand for landscaping purposes on golf courses and housing development on the West Coast and expanding into the Texas market.

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

  • It is still a tough market (primarily supplying oil and gas) with cost increases that can't yet be passed on in selling prices. Costs include property tax, insurance, etc.
  • Finding quality employees continues to be our biggest struggle. Lack of a qualified workforce is our leading contributor to stalled growth.

Insurance Carriers and Related Activities

  • With lower mortgage rates, we see increasing home transactions and continued commercial real estate strength.

Real Estate

  • The upper end of the housing market is slower than in 2018 despite very positive economic conditions. Since the November elections, we feel the rhetoric and polarization in D.C. have created a wait-and-see attitude among higher-income households that might have considered a housing change.
  • My outlook for our company has not changed, but I can’t see any reason for optimism in general business activity. There is no resolution in sight for the immigration issue or the tariff issue. The president is penalizing the border cities for Congress' lack of progress on immigration and not backing his wall, which has a direct impact on business in the U.S. and trade with Mexico. With the tariff impact and the border closure impact, it will be a miracle if we don't start seeing an impact on employment.
  • President Trump is doing a good job for our economy.

Professional, Scientific and Technical Services

  • We are really in a holding pattern for now. We are watching earnings season closely as well as other economic indicators being reported. Earnings and other indicators surfacing seem to be more favorable than expected, but there is some concern that will turn later. (Consumer sentiment is good, and jobs are OK.) The hard line on Iran is no doubt impacting oil prices, and we will be watching closely to see what happens here. If that oil leaves the market, who makes up for it? Given the difference in crude coming out of Iran, we are not sure Texas fills that shortfall (or the U.S. generally). We will be watching negotiations with China as well. We are in a precarious position on a number of fronts so markets could turn sharply with bad news. We are pleased to see better numbers out of China, if anyone actually believes you can fully rely on them. The Mueller report and continued coverage are concerning as well. There continues to be political uncertainty domestically that has the potential to impact markets, too. (And let's not forget Brexit, although that can has been kicked yet again.) I do hope Chairman Powell holds the course and ignores this administration.
  • We simply cannot find enough legal entry-level workers to complete our work. We are actively turning away new business, as despite all efforts including pay increases, hiring and referral bonuses, etc., we are unable to keep a full staff. In past years, we've relied on the H-2B visa program, but due to increasing use of the program, we found ourselves unable to obtain visas this year. We will ultimately lose close to $2 million in revenue this year due to lack of available labor.
  • We believe a downturn is starting to gestate.
  • President Trump is the biggest uncertainty. His handling of the Iranian nuclear deal is making a real mess out of the energy business.
  • Many baby boomers are pretty clueless as to how high business valuations are right now, and this lofty level we believe is going to decline in the next 12–18 months as too many decide to come on the market and sell their companies. In our opinion, those that think that they will want to sell in the next 24–36 months need to be sure that they have their company positioned to sell. We call this process here a “readiness review.”
  • Construction prices remain high, but I have some optimism that sellers are being more reasonable in their pricing. I have grave concerns that the city of Dallas’ changes to the building code will further increase construction costs, making projects harder to do. More importantly, the city's new affordable housing policy is killing projects at a record rate during the due diligence process. It may be a noble endeavor, but sellers are unwilling to reduce their pricing for this social policy. Affordable units cost developers significant money.
  • The position the U.S. is holding in the world is one of uncertainty and hesitation. We need to be sure that Texas remains the growth capital in the U.S. and that our pursuits of firms to locate here do not diminish.
  • The mergers and acquisitions market is starting to pick back up. The real estate market has improved a bit but is still not as strong as prior years. Controversy work (litigation and restructuring) in Texas has increased.
  • The Dallas–Fort Worth real estate market has continued to level off with the residential market showing signs of strengthening. After months of seeing residential orders on the decline, they are now beginning to recover year over year. Commercial orders have declined slightly year over year, but we still remain bullish for the remainder of 2019.

Administrative and Support Services

  • There is a natural increase in activity for our contracts during the spring and summer months.
  • We see a solid economy. People are working, and that increases business.

Waste Management and Remediation Services

  • Because of a pullback by China in buying scrap materials (due to environmental issues, tariffs and political jockeying), selling prices for scrap commodities, especially fiber (corrugated) are at a 10-year low. A slowdown in manufacturing and abundant supplies also has decreased the demand side for new corrugated products.

Educational Services

  • Trade and continued fiscal policy (supply side) can help drive the engine of growth.

Ambulatory Health Care Services

  • Health care services’ most significant cost component is the labor only. With the Permian Basin energy sector driving the significant shortage of staff in all areas, the cost of labor went up significantly for health care providers. This is even as revenue from medical insurance declined due to increased managed care payers paying less for medical service providers. This finds health care providers with an increasing cost of service with decreasing year-over-year revenue.

Hospitals

  • Continued unfunded mandates from the state legislature and Congress concern me about the stability of an independent rural health system.

Social Assistance

  • We have seen funding decrease.

Amusement, Gambling and Recreation Industries

  • All of Austin is facing the same major issue around the lack of good employees to hire, particularly in the service sector. We are not only competing with each other but with the robust construction that is going on and the influx of tech companies that are willing to train and pay people at the entry level at or over $15 an hour. This is putting an upward pressure on wages, wage-related costs and then selling prices. Even as we adjust our wages, the lack of qualified employees does not improve. We are simply trying to be sure the good employees we have will not go somewhere else.

Accommodation

  • Nothing remarkable is currently anticipated. As the saying goes, no news is good news.

Food Services and Drinking Places

  • Our business continues to be strong. We are experiencing positive same-store sales in all markets.
  • The labor market remains tight, and input costs continue to rise. We saw a significant gain in same-store sales from March to April—a rather large swing for such a short period of time. We are a quick-service restaurant chain in Central and South Texas and operate on a 13-period, 28-day accounting system. We are good at tracking our sales by day segments against the exact days a year ago. March was really slow!

Religious, Grantmaking, Civic, Professional and Similar Organizations

  • In the health care field, the uncertainty of the reimbursement level is a hindrance to planning and capital investments.

Merchant Wholesalers, Durable Goods

  • It is a great year. Construction is strong.

Merchant Wholesalers, Nondurable Goods

  • We see road construction in our area and increased cost of transportation due to gas prices and lack of drivers in the trucking industry.

Motor Vehicle and Parts Dealers

  • Inventories are too high. Interest rates have dramatically increased the cost of carrying inventory and doing business in general. The Fed [Federal Reserve] misjudged the market the last two years, and those are costly mistakes. Many of the articles you read about the automobile industry are misleading. The SAAR [seasonally adjusted, annulized rate] is overstated with rental and fleet units. 2018 was a difficult year for many retailers as profits dropped dramatically from 2017. You must take that into consideration when you hear positive trends for 2019 if, and when, you read profits are up.
  • We see continued inventory pressure from auto manufacturers in a softer sales environment. Expect inventories to drop as the year progresses. Wages will remain constant with little change due to expected downward pressure on sales.
  • We have made significant management changes, which is the reason our business outlook has improved and our employee head count is increasing.

Building Material and Garden Equipment and Supplies Dealers

  • We started to slow down in December of last year, and January was a bad month in what we thought was due to weather. Year to date we are running about 5 percent less than a year ago. Hopefully, the market will pick up, but activity seems somewhat slower than we had projected.
  • Weather conditions improved somewhat in April over March, leading to increased consumer demand. However, the better weather was offset by the negative impact of consumers from the 2017 tax act, which increased taxes on most of our customers, reducing the tax refunds they normally receive during the spring season. Now the Texas Legislature is considering sales tax hikes, which would further reduce consumer disposable income and increase the cost of retail purchases.

Clothing and Clothing Accessories Stores

  • Sales at stores near the Mexican border continue to drop at double digit rates.

General Merchandise Stores

  • We exited a high-ticket category (appliances) that will have an impact on our top-line sales. All else being equal, we expect revenues to remain consistent six months from now.

 

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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