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Texas Service Sector Activity Growth Weakens

Texas Service Sector Outlook Survey

Report in PDF

May 29, 2019

Texas Service Sector Activity Growth Weakens

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, Texas Service Sector Outlook Survey and Texas Retail Outlook Survey have been released together. Read the Special Questions results.

Texas service sector activity growth slowed 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, dropped from 13.9 in April to 2.7 in May.

Labor market indicators reflected slower employment growth and slightly longer workweeks this month. The employment index declined nearly five points but held positive at 6.8, while the hours worked index was roughly unchanged at 1.8 in May.

Perceptions of broader business conditions turned negative, while uncertainty measures increased sharply in May. The general business activity index fell six points to -0.3, while the company outlook index fell into negative territory at -2.3. The outlook uncertainty index surged from 12.8 to 19.3 in May, its highest reading since the series began in January 2018.

Price and wage pressures eased moderately this month. The wages and benefits index dropped slightly to 19.0 in May, while the selling prices index fell to 4.6, its lowest reading in more than two years. The input prices index slipped two points to 23.7.

Respondents’ expectations regarding future business conditions, though still positive on net, were much less so than in April. The future general business activity index fell from 12.3 to 0.7 in May, while the future company outlook index dropped over 15 points to 4.1. Other indexes of future service sector activity, such as revenue and employment, also declined but remain positive, reflecting expectations of continued growth over the next six months.

Texas Retail Outlook Survey

May 29, 2019

Retail Sales Fall

Retail sales fell in May, according to business executives responding to the Texas Retail Outlook Survey. The sales index plummeted from 13.2 in April to -9.2 in May, its lowest value since 2015. Inventories continued to fall, as the inventories index dipped from -5.5 to -6.6.

Retail labor market indicators were negative, suggesting a slight drop in employment and a shorter workweek. The employment index fell over 12 points to -3.8, while the hours worked index declined from -2.2 to -7.8, its lowest reading since late 2016.

Retailers’ perceptions of broader business conditions were increasingly pessimistic and uncertain in May. The general business activity index fell from -10.7 to -15.5, while the company outlook index plummeted over 15 points to -20.4, a near-decade low. The outlook uncertainty index surged to a record high of 34.6.

Retail price and wage pressures eased in May. The selling prices index dropped from 10.9 to 1.4, while the input prices index slipped about four points to 7.3. The wages and benefits index softened slightly from 18.3 in April to 16.6 in May, although over a quarter of respondents still reported increasing labor costs.

Retailers’ perception of future business conditions worsened this month. The future general business activity index plunged from 2.5 in April to -15.6 in May, while the future company outlook index fell over 17 points to -8.4. Other indexes of future retail sector activity, such as sales and employment, also turned negative, suggesting expectations of weaker conditions 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: June 25, 2019

Data were collected May 14–22, and 235 Texas service sector and 53 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 29, 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)
IndicatorMay IndexApr IndexChangeIndicator Direction*Trend** (Months)% Reporting Increase% Reporting
No Change
% Reporting Decrease

Revenue

2.7

13.9

–11.2

Increasing

114

22.8

57.1

20.1

Employment

6.8

11.6

–4.8

Increasing

111

14.9

77.0

8.1

Part–Time Employment

1.9

2.8

–0.9

Increasing

4

6.6

88.7

4.7

Hours Worked

1.8

2.4

–0.6

Increasing

31

8.8

84.2

7.0

Wages and Benefits

19.0

20.3

–1.3

Increasing

120

22.3

74.4

3.3

Input Prices

23.7

25.7

–2.0

Increasing

121

26.3

71.1

2.6

Selling Prices

4.6

10.4

–5.8

Increasing

39

11.5

81.6

6.9

Capital Expenditures

11.9

17.5

–5.6

Increasing

117

17.3

77.3

5.4

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

Company Outlook

–2.3

5.5

–7.8

Worsening

1

12.1

73.5

14.4

General Business Activity

–0.3

5.7

–6.0

Worsening

1

13.6

72.5

13.9

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

Outlook Uncertainty†

19.3

12.8

+6.5

Increasing

16

27.6

64.1

8.3

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

27.7

41.3

–13.6

Increasing

123

40.9

45.9

13.2

Employment

16.9

19.4

–2.5

Increasing

122

28.8

59.3

11.9

Part–Time Employment

1.9

4.8

–2.9

Increasing

83

10.7

80.4

8.8

Hours Worked

1.9

7.1

–5.2

Increasing

33

8.8

84.3

6.9

Wages and Benefits

36.3

37.7

–1.4

Increasing

149

40.1

56.1

3.8

Input Prices

40.2

38.1

+2.1

Increasing

149

42.9

54.4

2.7

Selling Prices

22.2

26.8

–4.6

Increasing

121

28.2

65.8

6.0

Capital Expenditures

15.2

23.3

–8.1

Increasing

122

24.0

67.3

8.8

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

Company Outlook

4.1

19.4

–15.3

Improving

5

20.8

62.5

16.7

General Business Activity

0.7

12.3

–11.6

Improving

4

18.1

64.6

17.4

Texas Retail Outlook Survey

May 29, 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)
IndicatorMay IndexApr IndexChangeIndicator Direction*Trend** (Months)% Reporting Increase% Reporting
No Change
% Reporting Decrease
Retail Activity in Texas

Sales

–9.2

13.2

–22.4

Decreasing

1

20.8

49.1

30.0

Employment

–3.8

8.5

–12.3

Decreasing

1

8.6

79.0

12.4

Part–Time Employment

2.0

5.6

–3.6

Increasing

4

5.8

90.4

3.8

Hours Worked

–7.8

–2.2

–5.6

Decreasing

6

5.0

82.2

12.8

Wages and Benefits

16.6

18.3

–1.7

Increasing

99

25.2

66.2

8.6

Input Prices

7.3

10.9

–3.6

Increasing

40

14.4

78.5

7.1

Selling Prices

1.4

10.9

–9.5

Increasing

26

13.2

75.0

11.8

Capital Expenditures

3.8

14.8

–11.0

Increasing

4

11.5

80.8

7.7

Inventories

–6.6

–5.5

–1.1

Decreasing

2

18.1

57.2

24.7

Companywide Retail Activity

Companywide Sales

–13.7

8.8

–22.5

Decreasing

1

15.8

54.7

29.5

Companywide Internet Sales

7.9

7.1

+0.8

Increasing

13

21.9

64.1

14.0

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

Company Outlook

–20.4

–5.2

–15.2

Worsening

6

4.7

70.2

25.1

General Business Activity

–15.5

–10.7

–4.8

Worsening

6

5.2

74.1

20.7

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

Outlook Uncertainty†

34.6

14.5

+20.1

Increasing

12

34.6

65.4

0.0

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

–7.2

25.6

–32.8

Decreasing

1

19.3

54.2

26.5

Employment

–8.3

5.0

–13.3

Decreasing

1

11.0

69.7

19.3

Part–Time Employment

–3.8

0.3

–4.1

Decreasing

1

6.9

82.4

10.7

Hours Worked

–6.0

–1.7

–4.3

Decreasing

7

5.9

82.2

11.9

Wages and Benefits

27.4

27.9

–0.5

Increasing

125

34.5

58.5

7.1

Input Prices

24.0

24.0

0.0

Increasing

121

30.0

64.0

6.0

Selling Prices

21.1

24.5

–3.4

Increasing

121

28.8

63.5

7.7

Capital Expenditures

–5.9

9.5

–15.4

Decreasing

1

7.8

78.4

13.7

Inventories

–7.8

1.5

–9.3

Decreasing

1

17.6

57.0

25.4

Companywide Retail Activity

Companywide Sales

0.6

26.4

–25.8

Increasing

122

22.6

55.4

22.0

Companywide Internet Sales

5.3

26.3

–21.0

Increasing

34

23.7

57.9

18.4

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

Company Outlook

–8.4

9.2

–17.6

Worsening

0

13.7

64.2

22.1

General Business Activity

–15.6

2.5

–18.1

Worsening

1

10.5

63.4

26.1

*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 29, 2019

Downloadable chart

Texas Retail Outlook Survey

May 29, 2019

Downloadable chart

Texas Service Sector Outlook Survey

May 29, 2019

Comments from Survey Respondents

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

Utilities

  • The trade war with China is starting to affect long-term plans for many customers. There are a number of companies starting to plan for a slowdown.

Truck Transportation

  • Our business level has almost stopped. Truck repair is extremely slow right now.

Publishing Industries (Except Internet)

  • The “who blinks or folds first” regarding trade and military risk in Asia, South America and the Middle East seems to be a growing cluster of uncertainty. We have modest overall concern currently but it’s getting hotter with escalating actions.

Data Processing, Hosting and Related Services

  • The cost of hiring and keeping employees continues to increase. Additionally, the challenge of finding qualified employees has caused us to look outside of the local market (and outside of the state).

Credit Intermediation and Related Activities

  • Our bank's balance sheets are tightening. We continue to focus on regulatory issues, including balance sheet concentrations, liquidity and margin pressures.
  • Central Texas’ shutdown of the oil sand mining industry is having a big impact on local businesses. Retail sales are down, and as a result, sales tax receipts are down. The area cities’ revenues will be affected from reduction in utility income and lower property tax income beginning in 2020. A company from California bought two of the production plants; they are a landscape company specializing in golf courses and synthetic athletic fields that require sand bases and filler. They hired 44 employees to run the plants in McCulloch County. Oil well exploration has slowed down to the extent that even the West Texas oil sand surface mining production has slowed down enough to see some plants shut down out there. Until there is infrastructure to ship the anticipated volume of oil production that is possible from the oil well to the refineries and to the shipping harbors, there is only so much capacity available to ship the oil.

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

  • Markets remain the same, but costs continue to rise: basic property taxes, insurance, raw materials and supplies. It is difficult to pass these increases on to our customer base.
  • The economy seems to be stabilizing for us. Wages seem to be increasing at a more predictable rate. The number of applicants continues to remain strong, while hiring qualified candidates remains a concern.
  • We are a financial services company. As such, market volatility and valuation affects our revenue. Recent revenue has spiked along with equity valuations. Personally, I am concerned current policy toward China will slow the economy, reduce consumer confidence, cause inflation and create a negative investment environment the back half of this year.
  • Retail and auto sales have slowed. Construction is lower than last year, and drilling is down 40 percent, but crops will do better because of rain.

Insurance Carriers and Related Activities

  • We're about to get through storm season in Texas, so hopefully the rain, hail and destructive wind is almost over for 2019.

Real Estate

  • While I do not expect the trade talks to result in any real results in the near future, the unrealistic expectations of the press and the constant news coverage of the tariffs I believe will be very detrimental to consumer confidence and slow the economy in the future. The additional pressure of the elections next year I also see as a major damper for the consumer.
  • The news regarding the tariff negotiation with China, the possible war in Iran and the negative media talk on immigration and Trump affects how buyers feel. They tend to hold back on large purchases, especially when their stock portfolio drops 600 points in a day.

Rental and Leasing Services

  • First sign of an oilfield bust is if all your rental equipment starts coming home. Drive by all the equipment yards in the Permian, or for that matter anywhere in Texas. They are stacked with equipment!

Professional, Scientific and Technical Services

  • Things are really wait and see at this point. We see decent results from an economic perspective right now. The China situation seems to be deteriorating somewhat. Things need to change from a trade perspective, and it’s possible to still get there, although it may take more time than anticipated. Also we still believe the Fed [Federal Reserve] should hold its current course and not be influenced by this administration.
  • Tariffs have caused the business of our clients to stall.
  • We are much more optimistic with an administration willing to hold China to account and stand firm. Tariffs are causing no inflation; stock market, employment and growth are all at generational highs. If you can't be optimistic now, you never will be.
  • The just-announced tariffs for Chinese products will increase prices overall.
  • We continue to see a slow start to the year. Production is off year over year. While we hear of possibilities of new business and deals taking off, we are not seeing it happen. Any thought that we would start to work out of the slow start because of the government shutdown is now waning with the additions of new tariffs, the continued slowdown at the border, and the uncertainty with foreign policy moves.
  • Generally, our outlook for the real estate industry has remained strong. Order counts for both commercial and residential transactions have remained steady, and we are optimistic that they will remain strong through the end of the year.
  • We are seeing good increases in rates, and demand seems pretty strong. It looks like this year will be better than last year by a good amount.
  • We're in the oil and gas business and are dependent upon new pipeline work. There are a lot of projects being discussed but just a very few that have actually gone forward. We are not sure why the market has slowed at this point.
  • President Trump's tariffs are not helping the economy. They breed uncertainty. The political confusion is at its highest in my memory.

Management of Companies and Enterprises

  • Indications and thoughts of an economic correction are beginning to weigh into our decisions going forward.

Administrative and Support Services

  • Currently with a growing market, the competition within each industry places budget constraints on our customers, particularly in the multifamily and restaurant markets.
  • Overall we have experienced a slowdown since May 1. This slowdown is not a natural cycle in our business model. Request for quotations (RFQs) have slowed down and projects that were scheduled have been delayed. As to the cause, we are still working on an answer. My guess would be the trade dispute. The industrial sector has decreased in activity for our inspection services starting March 2019. We see no increase until the trade issue is resolved. We hear from these people that the price of raw materials is their justification for this position. The commercial aviation sector has remained constant from April to May. With the "grounding" of the Boeing 737 MAX aircraft, we assume that the higher utilization hours being applied to other aircraft types will increase our customer needs for our services. The corporate aviation sector has increased 2 percent since April. Most of the increase is for smaller calendar-type inspections needed on components of the aircraft and not the airframe itself. The military market has remained consistent since the beginning of the year. We do project an increase if and when the DOD [Department of Defense] releases a new set of procurement guidelines. The metal fabrication sector has remained flat, with no increase in RFQs being submitted outside of our usual customer base. Once again, material prices are driving their concern for the RFQs that they submit to their customers.

Educational Services

  • It seems like a tough time now with the China trade dispute. But this fight is well overdue. I think the U.S. will come out at the end in a better position. Trade should be free, but it needs to be fair first.

Ambulatory Health Care Services

  • Monthly limerick punditry—Fed rates up or down, no prognosticator is quite sure; too many Twitter battles or social rants du jour; tariffs remain in the air; keep markets from a tear; politicians must remember: Fed independence must remain secure.
  • Capital expenditures have related to updating network servers and workstations and are routine.

Hospitals

  • Regulatory discussions in Washington continue to put pressures on rural independent health systems. The outlook does not look good for our rural communities.

Social Assistance

  • The political climate makes it hard for small businesses to improve project growth, especially small minority businesses. State legislation is not transparent and is impacted quarterly by federal law changes. Looming changes in state laws and international trade issues are even more difficult to forecast and  create even more instability.
  • There have been issues with private funders changing their funding priorities.

Amusement, Gambling and Recreation Industries

  • We have had poor weather conditions.

Accommodation

  • We have experienced some softening of demand, particularly in industrial, agricultural and mineral markets. City center, airport and regional transportation hubs have seen flat demand but have the ability to slightly increase prices. Labor shortages and wage pressures continue to challenge our future profit outlook.
  • We will undergo a capital renovation to our property that will impact our capacity for the back half of 2019.

Food Services and Drinking Places

  • The China situation has affected us. Pork prices and disposable supplies have both pushed our costs higher. A planned increase in prices will have to come sooner than planned.
  • This area is still developing, bringing in many new neighborhood competitors.
  • Wages continue to increase. End-of-month sales seem to be impacted more, which tells me wage earners are living more hand to mouth.

Motor Vehicle and Parts Dealers

  • Our industry is running at 17 million sales [seasonally adjusted, annualized rate], but it doesn't feel like it. Retail sales are down and fleet up. Inventories are, and have been, high all year due to a declining retail market. Floor plan expenses are significantly higher than a year ago—an increase of over $1 million for first quarter 2019 versus 2018 and annualized, $3 million. Unit costs are higher, new vehicle inventory is higher and interest rates are higher than a year ago. Dealer profits are down and many franchised dealers are operating in the “red.”

Furniture and Home Furnishings Stores

  • Sales volume is down in May, but primarily due to April being a record month. Order files remain slightly positive for the next three months. Weather has had a negative effect on business in three of five months this year. Forest products’ cost deflation from last year has contributed to 5 percent reduction in year-over-year sales. Fortunately, we have offset that and more with new starts and inflation in other categories.

Building Material and Garden Equipment and Supplies Dealers

  • Our sales are off over last year and, hopefully, this is just weather related, but the level of activity does seem down. Nothing really major, but not the growth we'd like to see.
  • There are increasing consumer concerns over the cost and economic consequences of trade war, coupled with fears of U.S. military involvement in regional conflict between Saudi Arabia and Iran.

Clothing and Clothing Accessories Stores

  • The tariff situation is becoming an issue as suppliers are now threatening higher pricing.

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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