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Texas Service Sector Growth Softens

Texas Service Sector Outlook Survey

Report in PDF

August 27, 2019

Texas Service Sector Growth Softens

What’s New This Month

For this month’s survey, Texas business executives were asked supplemental questions on the labor market and pricing power. 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 weaker pace in August, according to business executives responding to the Texas Service Sector Outlook Survey. The revenue index, a key measure of state service sector conditions, fell from 20.9 in July to 7.8 in August.

Labor market indicators reflected faster employment growth and longer workweeks this month. The employment index rose from 8.7 to 10.2, while the hours worked index was mostly unchanged at 8.2 in August.

Perceptions of broader business conditions softened, and uncertainty increased compared with July. The general business activity index declined over four points to 0.2 in August, while the company outlook index fell over six points into negative territory at -2.5. The outlook uncertainty index rose to an all-time high of 19.6, with 30 percent of respondents noting greater uncertainty compared with July.

Wage pressures remained elevated in August, while price pressures were mixed. The wages and benefits index was mostly unchanged at 20.0. The selling prices index declined from 5.8 to 1.5—its lowest reading since early 2016—while the input prices index increased slightly to 23.8.

Respondents’ expectations regarding future business conditions weakened compared with July. The future company outlook index dropped nearly nine points to 4.6 in August, while the future general business activity index plummeted from 10.7 to -4.0. Other indexes of future service sector activity, such as revenue and employment, fell below their 12-month averages but continued to reflected expectations of positive growth over the next six months.

Texas Retail Outlook Survey

August 27, 2019

Retail Sales Hold Flat

Retail sales were flat in August, according to business executives responding to the Texas Retail Outlook Survey. The sales index held largely steady at -0.2, indicating little net change compared with July. Growth in inventories declined slightly, as the inventories index dipped from 7.3 to 5.5.

Retail labor market indicators weakened compared with July, as respondents indicated a decline in employment and a slightly shortened workweek. The employment index dropped over six points to -5.6, while the hours worked index fell from 1.7 in July to -2.9 in August.

Retailers’ perceptions of broader business conditions deteriorated further in August. The general business activity index weakened from -7.7 to -8.9, while the company outlook index dropped nearly six points to -13.8. The outlook uncertainty index increased this month, surging over 15 points to 21.1.

Retail price and wage pressures increased in August. The input prices index increased 11 points to 18.8, while the selling prices index surged from 5.8 to a 10-month high of 16.8. The wages and benefits index ticked up from 12.1 to 13.5.

Retailers’ perception of future business conditions turned pessimistic this month. The future general business activity index fell nearly 15 points to -14.6, while the future company outlook index plummeted 23 points to -12.4. Most other indexes of future retail sector activity also fell, reflecting expectations for weaker growth 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: October 1, 2019

Data were collected August 13–21, and 226 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

August 27, 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)
IndicatorAug IndexJul IndexChangeSeries
Average
Trend*% Reporting Increase% Reporting
No Change
% Reporting Decrease

Revenue

7.8

20.9

–13.1

12.1

117(+)

26.4

55.0

18.6

Employment

10.2

8.7

+1.5

6.7

114(+)

18.0

74.2

7.8

Part–Time Employment

3.7

3.7

0.0

1.8

7(+)

8.7

86.3

5.0

Hours Worked

8.2

7.6

+0.6

2.8

34(+)

11.4

85.4

3.2

Wages and Benefits

20.0

19.2

+0.8

14.6

123(+)

22.1

75.8

2.1

Input Prices

23.8

22.5

+1.3

25.4

124(+)

27.6

68.6

3.8

Selling Prices

1.5

5.8

–4.3

5.5

42(+)

12.5

76.5

11.0

Capital Expenditures

17.4

7.9

+9.5

10.8

120(+)

22.4

72.6

5.0

General Business Conditions
Current (versus previous month)
IndicatorAug IndexJul IndexChangeSeries
Average
Trend**% Reporting Improved% Reporting
No Change
% Reporting Worsened

Company Outlook

–2.5

3.6

–6.1

6.1

1(–)

13.7

70.1

16.2

General Business Activity

0.2

4.7

–4.5

3.9

3(+)

16.2

67.8

16.0

IndicatorAug IndexJul IndexChangeSeries
Average
Trend*% Reporting Increase% Reporting
No Change
% Reporting Decrease

Outlook Uncertainty†

19.6

16.3

+3.3

11.4

19(+)

29.9

59.9

10.3

Business Indicators Relating to Facilities and Products in Texas
Future (six months ahead)
IndicatorAug IndexJul IndexChangeSeries
Average
Trend*% Reporting Increase% Reporting
No Change
% Reporting Decrease

Revenue

31.3

40.8

–9.5

37.9

126(+)

45.8

39.8

14.5

Employment

24.3

25.2

–0.9

22.2

125(+)

31.4

61.5

7.1

Part–Time Employment

0.6

0.9

–0.3

6.7

2(+)

9.8

81.0

9.2

Hours Worked

5.1

3.6

+1.5

5.4

36(+)

9.4

86.3

4.3

Wages and Benefits

39.5

37.1

+2.4

36.4

152(+)

42.0

55.5

2.5

Input Prices

40.5

33.5

+7.0

44.6

152(+)

44.3

51.9

3.8

Selling Prices

20.0

20.5

–0.5

23.4

124(+)

29.7

60.6

9.7

Capital Expenditures

18.4

19.4

–1.0

24.2

125(+)

26.9

64.7

8.5

General Business Conditions
Future (six months ahead)
IndicatorAug IndexJul IndexChangeSeries
Average
Trend**% Reporting Improved% Reporting
No Change
% Reporting Worsened

Company Outlook

4.6

13.4

–8.8

17.1

8(+)

22.1

60.4

17.5

General Business Activity

–4.0

10.7

–14.7

13.8

1(–)

17.3

61.4

21.3

Texas Retail Outlook Survey

August 27, 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)
IndicatorAug IndexJul IndexChangeSeries
Average
Trend*% Reporting Increase% Reporting
No Change
% Reporting Decrease
Retail Activity in Texas

Sales

–0.2

0.6

–0.8

6.8

1(–)

20.4

59.0

20.6

Employment

–5.6

0.7

–6.3

2.4

1(–)

4.4

85.6

10.0

Part–Time Employment

0.0

0.0

0.0

–1.7

3()

5.9

88.2

5.9

Hours Worked

–2.9

1.7

–4.6

–1.2

1(–)

2.6

91.9

5.5

Wages and Benefits

13.5

12.1

+1.4

9.7

102(+)

20.2

73.1

6.7

Input Prices

18.8

7.8

+11.0

19.1

43(+)

24.2

70.4

5.4

Selling Prices

16.8

5.8

+11.0

10.2

29(+)

22.1

72.6

5.3

Capital Expenditures

13.2

1.9

+11.3

9.6

7(+)

17.0

79.2

3.8

Inventories

5.5

7.3

–1.8

4.0

3(+)

23.4

58.7

17.9

Companywide Retail Activity

Companywide Sales

2.1

6.7

–4.6

8.5

2(+)

19.6

62.9

17.5

Companywide Internet Sales

4.2

26.8

–22.6

7.0

16(+)

14.6

75.0

10.4

General Business Conditions, Retail
Current (versus previous month)
IndicatorAug IndexJul IndexChangeSeries
Average
Trend**% Reporting Improved% Reporting
No Change
% Reporting Worsened

Company Outlook

–13.8

–7.9

–5.9

4.4

9(–)

6.2

73.8

20.0

General Business Activity

–8.9

–7.7

–1.2

–0.1

9(–)

11.1

68.9

20.0

Outlook Uncertainty
Current (versus previous month)
IndicatorAug IndexJul IndexChangeSeries
Average
Trend*% Reporting Increase% Reporting
No Change
% Reporting Decrease

Outlook Uncertainty†

21.1

5.6

+15.5

10.2

15(+)

26.9

67.3

5.8

Business Indicators Relating to Facilities and Products in Texas, Retail
Future (six months ahead)
IndicatorAug IndexJul IndexChangeSeries
Average
Trend*% Reporting Increase% Reporting
No Change
% Reporting Decrease
Retail Activity in Texas

Sales

13.0

38.3

–25.3

33.0

3(+)

33.2

46.7

20.2

Employment

–2.3

12.4

–14.7

12.7

1(–)

13.1

71.5

15.4

Part–Time Employment

–3.0

1.5

–4.5

0.6

1(–)

6.4

84.2

9.4

Hours Worked

–2.4

–0.4

–2.0

2.8

10(–)

6.9

83.8

9.3

Wages and Benefits

32.3

24.8

+7.5

27.3

128(+)

36.0

60.3

3.7

Input Prices

39.2

26.5

+12.7

33.2

124(+)

43.1

52.9

3.9

Selling Prices

29.4

23.1

+6.3

29.1

124(+)

39.2

51.0

9.8

Capital Expenditures

8.0

1.9

+6.1

18.7

3(+)

16.0

76.0

8.0

Inventories

–6.9

–5.9

–1.0

8.7

4(–)

19.4

54.3

26.3

Companywide Retail Activity

Companywide Sales

4.9

27.6

–22.7

31.4

125(+)

26.0

52.9

21.1

Companywide Internet Sales

11.1

19.5

–8.4

22.0

37(+)

19.4

72.2

8.3

General Business Conditions, Retail
Future (six months ahead)
IndicatorAug IndexJul IndexChangeSeries
Average
Trend**% Reporting Improved% Reporting
No Change
% Reporting Worsened

Company Outlook

–12.4

10.9

–23.3

17.6

1(–)

10.5

66.6

22.9

General Business Activity

–14.6

0.1

–14.7

13.4

1(–)

10.2

65.0

24.8

*Shown is the number of consecutive months of expansion or contraction in the underlying indicator. Expansion is indicated by a positive index reading and denoted by a (+) in the table. Contraction is indicated by a negative index reading and denoted by a (–) in the table.

**Shown is the number of consecutive months of improvement or worsening in the underlying indicator. Improvement is indicated by a positive index reading and denoted by a (+) in the table. Worsening is indicated by a negative index reading and denoted by a (–) in the table.

†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

August 27, 2019

Downloadable chart

Texas Retail Outlook Survey

August 27, 2019

Downloadable chart

Texas Service Sector Outlook Survey

August 27, 2019

Comments from Survey Respondents

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

Utilities

  • The continued escalation of the trade war with China is starting to take its toll on businesses. There is less clarity for the future than I can ever recall.

Specialty Trade Contractors

  • We are seeing less capital expenditures spending.

Pipeline Transportation

  • We are tied to the outlook for crude oil production, technical challenges with well performance (multiwell pads, efficiency) and spending within cash flow in an uncertain global demand market.
  • There is lots of uncertainty about the global economy. It seems like there are more potential negative catalysts than positive ones at this point.

Data Processing, Hosting and Related Services

  • The recent interest rate change made a few buyers wonder if the economy is anticipated to worsen. Many buyers are starting to talk about nervousness for next year's presidential election, but it hasn't affected buying decisions yet. The climate of fewer new regulations has been a relief because of the cost burden of new regulation compliance. Businesses' greater concern is cybersecurity, and spending on that is enough of a new cost burden.

Credit Intermediation and Related Activities

  • We anticipate increased oil and gas M&A [mergers and acquisitions] activity, which will impact lending to the energy sector as service companies scramble to secure new relationships or protect incumbent relationships. We are operating with a view toward a recession beginning mid-2020.
  • The biggest concern now is the interest rate environment. In addition, we are unsure about the impact the global economic slowdown will have on the economy in the U.S. as well as the political unrest. We anticipate that the market will compress profit margins, and the primary strategy to offset the pressure on revenue will be increased volume, which will be a challenge if the economy decelerates.
  • Lower interest rates may cause a small increase in our margins over the longer term. Our company is expected to expand over the next two to five years.

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

  • We are finding our raw material prices are increasing, and it is tough to pass these along in a softer market. We are still trying to absorb property tax, insurance, etc., increases.
  • It is a tight job market.
  • We are concerned about indications of a possible recession. We are leaving some positions open in case this happens.

Insurance Carriers and Related Activities

  • Lower interest rates are driving home purchase and refinance transactions.

Real Estate

  • Business is decent but the continuing volatility in the stock market, trade uncertainty and stagnation in Congress on immigration and health insurance makes long-term planning difficult and forces extra caution in our approach. If we had more clarity on these big issues, we could be much more aggressive.
  • We are very tired of negative news. San Antonio restaurants are full and the shopping malls are full of smiling people. Why isn't there more positive news?
  • We are seeing fewer and fewer commercial appraisals for loan purposes. The loosening regulations on appraisals under specific loan limits is affecting our business dramatically. Independent commercial property owners are utilizing our Restricted Appraisal Reports to assess the value of their property to sell their properties. These reports are less expensive but are keeping us afloat during this time.

Rental and Leasing Services

  • Our industry metrics are all pretty much still positive, except new-home permits are lower by about 2 percent, but they are definitely slower. We started the year 15 percent ahead of 2018; that lead has dropped every month to now 1.5 percent ahead of 2018.

Professional, Scientific and Technical Services

  • We are worried about current economic conditions and volatility in markets. Global issues, including China trade matters, are playing into it. The reality is month-to-month changes aren't shifting materially right now, but sentiment is worsening the longer we look into the future. We are focused on the Fed [Federal Reserve] remaining independent and not bowing to political pressure. They should act based on their view of both U.S. and then more global economic conditions, which we do believe are challenged at present.
  • Tariffs continue to dominate the thoughts on investment, which in turn reduces the need for my consulting services.
  • We had a slight decrease in revenue this month over last month, but it was only due to summer last-minute vacation timing. It should be robust for the rest of the year and next year.
  • The strength of the firm's current contract backlog gives us a positive outlook over the next six–12-month horizon. Increasingly frequent news coverage about the inverted bond yield curve will prompt the firm to maintain a backup recession plan should the economy take a negative turn in the next 18–24 months.
  • We see continued strength in real estate and corporate with an uptick in litigation.
  • We see decreased activity in existing customers but increasing activity with new businesses.
  • Lack of available entry-level labor continues to be the biggest restriction on growth. We need the support of the Department of Labor/Department of Homeland Security and Congress to expand and improve seasonal work visa programs like H2B.
  • The economic and customer activity that we see seems to be very strong worldwide without us seeing effects of any trade-related issues. We are an infrastructure software provider that many companies need worldwide.
  • All signs—from CEO confidence (lack of M&A [mergers and acquisitions] activity, which we see directly), to the stock market, to continued trade tensions, to Brexit, to political issues in the Middle East and elsewhere—indicate a market slowdown/recession is looming. Take that into the 2020 election cycle and folks are likely to sit on their hands until they get a clear sense of what is going on. We are also seeing private equity funds being raised (significantly) for distressed deals, which is an indication of market expectations. Finally, both litigation and restructuring/bankruptcy work in our firm is increasing, which is generally a sign of the market turn.
  • What the election chaos is doing to the business uncertainty is amazing. The entire world is in turmoil and we are forced to stand by and watch. It is challenging at best.
  • We see little to no change in the Texas market. We are seeing an increase in our international business.

Management of Companies and Enterprises

  • The paradox is our port is extremely busy with export activity of oil, but with a tariff war looming, the clouds of uncertainty are getting darker. Agriculture is having a good year in our area, and we have a lot of capital expenditures being made on new plants. But, the jobs have been temporary in nature and not permanent.

Administrative and Support Services

  • The tariff issue with China has become a factor in our business. More corporate flight customers are postponing maintenance when they can to stock up on cash. The few vendors I have talked with are in agreement that we can expect increases in our purchase prices in the next few months because of the "lag" in stock and their price point that they have had to pay. I have had one vendor tell me that since most people are unaware of what all goes into the product, many manufacturers are using this tariff fight as a ruse to increase their selling prices under the banner that it’s "China’s" fault. This worries me more than the actual price increase, because where does it stop? The oil equipment service sector has been down, and we do not see it coming back anytime soon as far as demand for new products to inspect.
  • Demand for contract IT staff is definitely on a downward trend.

Educational Services

  • In the long term, I continue to remain optimistic about the local Texas economy as well as the national economy. I have heard talk of a recession on the horizon, but it's very hard for me to believe that fiscal and monetary policy and the bodies that govern these two economic tools would just sit on the sideline and watch the economy contract for two quarters. I believe after the election, [with a] Republican win in both Congress and the White House, the trade problem will be resolved, USMCA [U.S.–Mexico–Canada Agreement] will be passed and the Fed [Federal Reserve] will bring short-term rates back into balance in relation to the yield curve. In the short term, once any and all tariffs are in effect, businesses will have a better understanding of the full impact if any on their respective business lines, and the consumer will see the impact on product and service pricing. I don't see this affecting consumer spending; we as consumers (almost 70 percent of gross domestic product) are used to absorbing cost (i.e., rising gas prices, increase in minimum wage) in prices, and our buying habits are rarely curtailed. Holidays are looming, and we love to spend in the good ole U.S. of A.

Amusement, Gambling and Recreation Industries

  • As stated previously, our business remains strong, but, there are so many forces working against us. The unemployment rate in Austin is [2.7] percent. I believe that is well below what most economists consider to be full employment. Even with increased wages, there are simply not many qualified people to hire. That translates into those good people we do have working lots of overtime. In addition, we are looking at innovative ways to compensate those good employees. This year, we will fund the retirement plan with 9 percent of gross wages instead of the 7.5 percent last year and the several years prior. We are buying bus passes for those who need to take the bus. We offer bonuses for people who bring qualified people to us to hire. Property taxes are outrageous. You see that the property taxes are now going to go up, up, up, too. Perhaps more seriously to some of our folks is the price of avocados also skyrocketed.

Accommodation

  • There is too much uncertainty about what the federal government is thinking/doing. It’s definitely giving us pause on capital spending.
  • This is the third month in a row of signs of occupancy slowdown. Our daily rate is holding for now, but we expect it will soften as well as occupancy declines continue.

Food Services and Drinking Places

  • The [lack of] available labor is serious.
  • Starting in September, the customer count will go down due to children going back to school and stay that way until the middle of December. This happens every year in the restaurant business.

Religious, Grantmaking, Civic, Professional and Similar Organizations

  • Volatility in global markets, the uncertainty associated with the trade situation and the stock market swings, lower bond prices, rising consumer prices and recent wage slip give me concern that the expansion is winding down—just as we enter the 2020 political season. This makes for an unclear outlook.
  • As long as health care insurance issues remain in limbo, the uncertainty has a negative effect on the entire industry.

Motor Vehicle and Parts Dealers

  • We see sales weakness in our premium vehicle brands. Rising prices are slowing consumer spending on luxury vehicles.
  • The market continues to show signs of weakness. New-vehicle prices increased, and our margins are slim. Expenses are too high. A 0.25-percentage-point interest rate decline helps, but further rate cuts are necessary to grow the economy and improve profitability. The nine [federal funds] rate increases really impacted our industry and business model significantly.

Building Material and Garden Equipment and Supplies Dealers

  • Sales are down approximately 5–5 1/2 percent when compared with last year’s numbers. Uncertainty seems to be higher than in previous years. The ugliness of politics seems to be trickling down to businesses in our community, which is not good.
  • We marked our outlook as "unchanged" because we have been concerned about the impact of U.S. government actions, particularly trade policy uncertainty, on the Texas economy for several months. Recent developments have confirmed our perspective.

 

 

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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