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Texas Service Sector Growth Strengthens

Texas Service Sector Outlook Survey

Report in PDF

June 25, 2019

Texas Service Sector Growth Strengthens

What’s New This Month

For this month’s survey, Texas business executives were asked supplemental questions on the impact of tariffs. 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.

Activity in the Texas service sector grew at a faster pace in June, according to business executives responding to the Texas Service Sector Outlook Survey. The revenue index, a key measure of state service sector conditions, picked up from 2.7 in May to 13.6 in June.

Labor market indicators reflected steady employment growth and longer workweeks this month. The employment index was mostly unchanged at 6.9, while the hours worked index increased three points to 4.8 in June.

Perceptions of broader business conditions rebounded to positive territory, although uncertainty measures remained elevated. The general business activity index rose from -0.3 in May to 3.2 in June, while the company outlook index increased about seven points to 4.6. The capital expenditures index rose nearly five points to 16.6, slightly above its 12-month average, while the outlook uncertainty index was roughly unchanged at 19.0.

Wage pressures eased modestly this month, while price pressures inched up slightly. The wages and benefits index dropped from 19.0 in May to 16.9 in June. The selling prices index increased slightly to 6.9, while the input prices index ticked up to 25.8.

Respondents’ expectations regarding future business conditions were more optimistic than in May. The future general business activity index jumped from 0.7 in May to 9.0 in June, while the future company outlook index increased nearly eight points to 11.9. Other indexes of future service sector activity, such as revenue and employment, improved compared with May and reflected expectations of faster growth over the next six months.

Texas Retail Outlook Survey

June 25, 2019

Retail Sales Continue to Decline

Retail sales fell in June, according to business executives responding to the Texas Retail Outlook Survey. The sales index improved but remained in negative territory, rising from -9.2 in May to -6.8 in June. Inventories picked up slightly, as the inventories index rose from -6.6 to 1.4.

Retail labor market indicators continued to deteriorate, as respondents indicated a drop in employment and a shorter workweek. The employment index fell over five points to -9.0, its lowest reading since early 2010. The hours worked index increased about four points but remained negative at -3.7.

Retailers’ perceptions of broader business conditions continued to reflect pessimism, and uncertainty remained elevated in June. The general business activity index rose from -15.5 to -9.3, while the company outlook index increased nearly 10 points but also remained negative at -10.8. The outlook uncertainty index fell but was elevated at 26.0, with over one-third of respondents indicating heightened uncertainty compared with last month.

Retail price pressures were mixed in June, while wage pressures eased. The selling prices index surged 13 points to 14.4, while the input prices index held roughly steady at 7.7. The wages and benefits index plummeted over 10 points to 6.5, its lowest reading since 2016.

Retailers’ perception of future business conditions remained negative this month. The future general business activity index climbed nearly 12 points but held negative at -3.8, while the future company outlook index increased nearly four points to -4.5. Other indexes of future retail sector activity were mixed, as the future sales index rebounded to positive territory, while the future employment index remained negative.

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: July 30, 2019

Data were collected June 11–19, and 213 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 25, 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)
IndicatorJun IndexMay IndexChangeIndicator Direction*Trend** (Months)% Reporting Increase% Reporting
No Change
% Reporting Decrease

Revenue

13.6

2.7

+10.9

Increasing

115

29.6

54.4

16.0

Employment

6.9

6.8

+0.1

Increasing

112

17.4

72.1

10.5

Part–Time Employment

3.5

1.9

+1.6

Increasing

5

7.7

88.1

4.2

Hours Worked

4.8

1.8

+3.0

Increasing

32

10.9

83.0

6.1

Wages and Benefits

16.9

19.0

–2.1

Increasing

121

20.1

76.7

3.2

Input Prices

25.8

23.7

+2.1

Increasing

122

28.7

68.5

2.9

Selling Prices

6.9

4.6

+2.3

Increasing

40

14.3

78.4

7.4

Capital Expenditures

16.6

11.9

+4.7

Increasing

118

21.3

73.9

4.7

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

Company Outlook

4.6

–2.3

+6.9

Improving

1

15.9

72.9

11.3

General Business Activity

3.2

–0.3

+3.5

Improving

1

16.8

69.6

13.6

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

Outlook Uncertainty†

19.0

19.3

–0.3

Increasing

17

25.7

67.6

6.7

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

37.2

27.7

+9.5

Increasing

124

46.7

43.9

9.5

Employment

24.6

16.9

+7.7

Increasing

123

32.6

59.4

8.0

Part–Time Employment

–1.4

1.9

–3.3

Decreasing

1

8.7

81.2

10.1

Hours Worked

2.8

1.9

+0.9

Increasing

34

9.2

84.4

6.4

Wages and Benefits

38.6

36.3

+2.3

Increasing

150

41.3

56.0

2.7

Input Prices

39.4

40.2

–0.8

Increasing

150

42.7

54.0

3.3

Selling Prices

23.4

22.2

+1.2

Increasing

122

30.5

62.4

7.1

Capital Expenditures

21.6

15.2

+6.4

Increasing

123

27.0

67.6

5.4

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

Company Outlook

11.9

4.1

+7.8

Improving

6

24.2

63.5

12.3

General Business Activity

9.0

0.7

+8.3

Improving

5

22.5

63.9

13.5

Texas Retail Outlook Survey

June 25, 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)
IndicatorJun IndexMay IndexChangeIndicator Direction*Trend** (Months)% Reporting Increase% Reporting
No Change
% Reporting Decrease
Retail Activity in Texas

Sales

–6.8

–9.2

+2.4

Decreasing

2

20.3

52.6

27.1

Employment

–9.0

–3.8

–5.2

Decreasing

2

8.2

74.6

17.2

Part–Time Employment

0.0

2.0

–2.0

No Change

1

6.1

87.8

6.1

Hours Worked

–3.7

–7.8

+4.1

Decreasing

7

9.2

77.9

12.9

Wages and Benefits

6.5

16.6

–10.1

Increasing

100

15.5

75.5

9.0

Input Prices

7.7

7.3

+0.4

Increasing

41

17.9

71.9

10.2

Selling Prices

14.4

1.4

+13.0

Increasing

27

26.4

61.6

12.0

Capital Expenditures

6.0

3.8

+2.2

Increasing

5

14.0

78.0

8.0

Inventories

1.4

–6.6

+8.0

Increasing

1

18.2

65.0

16.8

Companywide Retail Activity

Companywide Sales

–7.5

–13.7

+6.2

Decreasing

2

17.0

58.5

24.5

Companywide Internet Sales

1.9

7.9

–6.0

Increasing

14

16.5

68.9

14.6

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

Company Outlook

–10.8

–20.4

+9.6

Worsening

7

10.0

69.2

20.8

General Business Activity

–9.3

–15.5

+6.2

Worsening

7

13.9

62.8

23.2

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

Outlook Uncertainty†

26.0

34.6

–8.6

Increasing

13

34.0

58.0

8.0

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

15.0

–7.2

+22.2

Increasing

1

33.3

48.4

18.3

Employment

–5.2

–8.3

+3.1

Decreasing

2

14.5

65.7

19.7

Part–Time Employment

–8.9

–3.8

–5.1

Decreasing

2

6.6

77.9

15.5

Hours Worked

–8.2

–6.0

–2.2

Decreasing

8

10.5

70.8

18.7

Wages and Benefits

19.3

27.4

–8.1

Increasing

126

27.8

63.7

8.5

Input Prices

28.6

24.0

+4.6

Increasing

122

34.7

59.2

6.1

Selling Prices

30.6

21.1

+9.5

Increasing

122

40.8

49.0

10.2

Capital Expenditures

4.2

–5.9

+10.1

Increasing

1

14.6

75.0

10.4

Inventories

–10.9

–7.8

–3.1

Decreasing

2

15.2

58.7

26.1

Companywide Retail Activity

Companywide Sales

7.9

0.6

+7.3

Increasing

123

30.0

47.9

22.1

Companywide Internet Sales

10.0

5.3

+4.7

Increasing

35

22.5

65.0

12.5

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

Company Outlook

–4.5

–8.4

+3.9

Worsening

1

14.7

66.1

19.2

General Business Activity

–3.8

–15.6

+11.8

Worsening

2

17.4

61.4

21.2

*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

June 25, 2019

Downloadable chart

Texas Retail Outlook Survey

June 25, 2019

Downloadable chart

Texas Service Sector Outlook Survey

June 25, 2019

Comments from Survey Respondents

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

Utilities

  • The threat of tariffs on goods from Mexico sent a shock wave throughout many organizations. Now that this has been settled, we’ll see if things get back to normal. The fear is that these threats continue to emerge without warning.

Pipeline Transportation

  • Global demand is key; trade/tariffs are currently dampening global demand expectations.

Warehousing and Storage

  • Our business outlook is improving due to restructuring of supply chains across the globe. However, uncertainty continues to plague the manufacturing industry due to threats from the Trump administration against Mexico.

Telecommunications

  • Tariffs are resulting in an increase in cost to our business. Specifically, we are experiencing a 7 percent increase in the cost of modems we are providing to serve our broadband customers. This is a cost we have to absorb in order to remain competitive against larger multinational firms in our market.

Credit Intermediation and Related Activities

  • We are laying off contractors and tightening hiring to try and squeeze more profits. Revenue growth is slowing.
  • With the closure of the sand-mining companies, consumer and commercial spending has slowed due to the reduction in the local workforce. A new company that purchased two of the sand plants for access to sand not related to the oilfield has provided a partial offset to the loss of jobs, hiring approximately 44 out of the 400-plus employees that lost local employment. Another positive counter is that over half of the employees who lost their jobs have been able to find jobs with mining companies in West Texas and have been able to maintain their local residency—one week on, one week off with accommodations provided on-site. The wind farm project should get underway soon and will provide a temporary boost to the local economy. The political unrest has everyone stirred up.
  • We are a community bank, and loan pipelines are shrinking.
  • The economy is relatively stable and growing modestly, but there is concern about the near future, which seems to be speculative rather than evidence-based.

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

  • There is a general flattening of most areas of our local economy. Recent rains will help, but tariffs remain a concern.
  • As a financial services company, we are very concerned with geopolitical issues such as increased hostilities (Iran) or tariff concerns (China, NAFTA 2.0). Federal Reserve policy is also a big factor for us. Overall, my office is cautiously optimistic based about the underlying economic growth.

Insurance Carriers and Related Activities

  • Input prices for us are insurance company rates for property insurance and business auto insurance in Texas. Both are up over 12 months ago.
  • Lower interest rates are driving real estate transaction volume.

Real Estate

  • The continued battles over immigration and trade continue to cloud long-term planning. We can deal with our local markets and market conditions, but the uncertainty of things out of our control makes longer-term planning difficult.
  • Economic fundamentals are great, yet clients and their decisions to participate in this market continue to be ruled by the negativity in the press and Congress. It’s disappointing to see such polarization in the country waste the grand economic opportunity currently available.
  • A slowing in lending has reduced our workload slightly, but diversity of our client base has kept our company revenue steady.
  • There is some concern regarding ongoing international news but nothing directly.

Professional, Scientific and Technical Services

  • We could see softening of the marketplaces leading up to and after the election. We could also see additional impact from tariffs. Our current contract backlog and mix of business should sustain us through some economic downturn provided that it is not a protracted one.
  • The tariff insanity continues and continues to be detrimental to the country, which slows down project work in the energy and petrochemical arena.
  • There is some concern about how the rest of 2019 and early-to-mid-2020 “shapes up.” I agree with recent pundits and think we could see a recession at some point in 2020 if something related to trade, etc., doesn’t push it up sooner. We would clearly like to avoid, but not sure with what is going on currently that we can. With those concerns, of course oil is impacted as folks pull back and inventories go up. Uncertainty has that effect; it impacts a large percentage of our clients, so it impacts us on the capital markets and M&A [mergers and acquisitions] side in particular. We will wait and watch closely.
  • Mergers and acquisitions (M&A) activity continued to be down, while litigation and restructuring activity is picking up—both generally signs that the economy is changing. The continued uncertainty in governmental policies remains problematic. Most industry leaders that I speak with still believe that 2019 will be a good year for the legal sector, but we are seeing significant headwinds. Year-over-year productivity among our lawyers is down.
  • The threat of tariffs on Mexico really puts our business in danger. All of the borderland was in suspense, and the thought that the threat can be used again only creates more uncertainty. We can’t plan ahead with these unknowns.
  • While residential real estate orders remain level year over year, we are experiencing a slowdown in commercial orders for sale transactions. Although the slowdown is not significant, it may be a sign that the Dallas–Fort Worth market is finally taking a breath after a nine-year run. We are still very optimistic that this market will remain stable for the next couple of years but do not think it will continue at the same pace we have enjoyed over the past four years.
  • Real estate continues to be going very strong—some good M&A [mergers and acquisitions] work.
  • Activity has slowed and seems to have reached a plateau.

Management of Companies and Enterprises

  • We have an affordable housing shortage in our area. The average home price is around $200,000, and we have plenty of willing buyers, but they just don’t qualify.

Administrative and Support Services

  • We have experienced some loss of customers as management in the real estate market changes due to the sale of buildings or loss of personnel. This has been a trend in the office market as new management looks for savings in the budget.
  • We are still slow from the first quarter of the year. I see no pickup in business right now. Everything has slowed down.

Waste Management and Remediation Services

  • Decrease in export activity has impacted the recycling industry. Overseas markets, especially China, have decreased their imports of scrap material, which has backed up the supply chain, creating oversupply in a supply-demand market. Selling prices are at their lowest levels since 2008. Because we are a commodity-based industry, prices will eventually begin to lift, but no one is predicting when that will occur.

Educational Services

  • The demand and margin for warehouse and packaging are better because capacity for third-party logistics (3PL) work is tight for our markets.
  • I still believe in the approach to China trade policy. We need tariffs to apply pressure and bring them to the table no matter the cost. I think the Fed [Federal Reserve] needs to continue to monitor in terms of their dual mandate but be cautious before acting. I am optimistic about the economy going into next year.

Ambulatory Health Care Services

  • With the Permian Basin energy boom, there is tremendous pressure on nonenergy companies to retain and hire a workforce when having to compete with much higher pay options in the energy field. Health care services are reimbursed on the national level, and there is a continued downward pressure to qualify, document and demonstrate quality, which increases the cost of service, while the operating cost continues to increase. The health care industry is having to innovate to manage this challenging environment.
  • This month’s somewhat entertaining eco-limerick: The Fed is expected to cut rates once or twice; price of debt dropping, which always is nice; Texas being hit by price of oil and gas; luckily, drillers have not left en masse; politics aside, ending the trade wars would suffice.

Nursing and Residential Care Facilities

  • Increased government regulations are effective in early July.

Performing Arts, Spectator Sports and Related Industries

  • Most uncertainty is being caused by government.

Amusement, Gambling and Recreation Industries

  • Weather has affected my outlook, as it is always bad on weekends where we generate revenue.
  • We have several things to watch out for. Our main concern is if the tariffs will increase the cost of food. Right now, that has not happened. In addition, the cost of health care insurance continues to escalate. (They said we should be happy that our health insurance is only going up about 10 percent this year, because we had so few claims last year.) Rent pass-through charges are awful due to the increases in property values in downtown Austin and the corresponding increase in property taxes. We have to sell a lot of martinis to cover the increase in our property taxes.

Accommodation

  • Uncertainty in our government’s policies related to tariffs is making business leaders very uncertain on what actions they should be taking. I am seeing much uncertainty in our business today. It’s hard to answer the questions regarding the future because of lack of clarity about where our leaders in government are taking us.

Merchant Wholesalers, Durable Goods

  • This business will be affected by the external issues such as customs tariffs and fees, due to business being primarily in China.
  • Metal prices are nearing the bottom of the market. They are expected to drop again next month. Unless we are going into full economic downturn, there is only one option: that this bottoms out. Prices for recycled metal have dropped about 30 percent year to date. Given projections on housing starts and commercial construction, I would think we will see things balance out.

Motor Vehicle and Parts Dealers

  • The talk of tariffs continues to be troubling in the automobile business. The proposed tariffs would be devastating to our business, and the continued threat of them is unsettling.
  • There is continued uncertainty with trade issues and growing deficit, but overall, still very solid performance from our business.

Building Material and Garden Equipment and Supplies Dealers

  • We see a definitive slowing down. Prices are soft because demand is down across the country. Not in panic mode, but we are not seeing any growth from last year’s numbers. We are off around 6 percent year to date and hopefully no more. There is uncertainty with everything going on.
  • There is growing concern over the duration and depth of an ongoing trade war and the potential for a new hot war in the Middle East.

Health and Personal Care Stores

  • My industry continues to be squeezed by the reimbursements from the pharmacy benefit management companies. We are in desperate need of government intervention and reform.

Clothing and Clothing Accessories Stores

  • Tariff discussions from our suppliers are scary.

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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