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Texas Service Sector Expansion Slows Slightly in September

Texas Service Sector Outlook Survey

September 28, 2021

Texas Service Sector Expansion Slows Slightly in September

What’s New This Month

For this month’s survey, Texas business executives were asked supplemental questions on supply-chain disruptions. 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.

The pace of growth in the Texas service sector slowed slightly in September, 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 16.5 in August to 14.5 in September.

Labor market indicators pointed to slower growth this month in the face of worker shortages, with a deceleration in hiring and reduced growth in average employee hours worked. The employment index dropped over eight points to 9.2, its weakest reading since February. The hours worked index fell six points to 5.6.

Perceptions of broader business conditions were modestly more optimistic in September. The general business activity index rose from 5.4 to 8.3, while the company outlook index was roughly unchanged at 5.9. The outlook uncertainty index was similarly flat at 19.6, with nearly 30 percent of respondents noting increased uncertainty compared with last month.

Wage pressures eased in September, though remained at historically high levels, while price pressures remained highly elevated. The wages and benefits index declined from 32.6 to 26.9. The selling prices index was largely unchanged at 20.2, with nearly a quarter of firms reporting increased prices compared with August, while the input prices index inched up one point to 42.9.

Respondents’ expectations regarding future business activity held at similar levels of optimism as last month. The future general business activity index increased slightly from 23 to 24.4, while the future revenue index was unchanged at 44.4. Other future service sector activity indexes such as employment and capital expenditures were unchanged compared with August; this suggests that on net, firms expect activity to pick up going into next year.

Texas Retail Outlook Survey

September 28, 2021

Texas Retail Sales Growth Holds Steady

Retail sales activity expanded for a second month in a row in September after three months of declines, according to business executives responding to the Texas Retail Outlook Survey. The sales index, a key measure of state retail activity, was roughly unchanged at 7.3 in September. Net inventories grew for the first time since February, with the inventories index surging from -6.4 to 11.8.

Retail labor market indicators improved substantially in September, with hiring picking up and growth in average employee hours worked improving. The employment index increased six points to 8.4, a four-month high, while the hours worked index improved from 4.6 to 9.2—its highest reading since 2019.

Retailers’ perceptions of broader business conditions improved compared with August. The general business activity index inched up from 8.5 to 10.0, while the company outlook index added four points, rising to 2.4. However, the outlook uncertainty index increased from 16.7 to 20.8—its highest reading since April 2020.

Retail price pressures surged once again in September after some signs of moderation in August, while wage pressures held steady. The selling prices index surged nearly 11 points to 50.4—with 58 percent of retailers increasing prices compared with August—while the input prices index increased from 41.3 to 50.1. The wages and benefits index was flat at 24.6.

Despite positive signs from current indicators, retailers were notably less optimistic in their expectations of future activity. The future general business activity index shed nine points, falling to 13.1, its lowest reading in over a year, while the future sales index fell nearly 18 points to 28.0. Other indexes of future retail activity such as employment held flat or weakened slightly, suggesting a more cautious optimism from retailers in their assessments of activity going into 2022.

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 26, 2021

Data were collected September 14–22, and 275 Texas service sector business executives, of which 49 were retailers, 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

September 28, 2021

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)
IndicatorSep IndexAug IndexChangeSeries
Average
Trend*% Reporting Increase% Reporting
No Change
% Reporting Decrease

Revenue

14.5

16.5

–2.0

11.0

14(+)

33.8

46.8

19.3

Employment

9.2

17.6

–8.4

6.2

14(+)

18.3

72.6

9.1

Part–Time Employment

4.6

6.1

–1.5

1.3

10(+)

7.8

89.0

3.2

Hours Worked

5.6

11.5

–5.9

2.5

13(+)

11.6

82.4

6.0

Wages and Benefits

26.9

32.6

–5.7

14.3

16(+)

29.3

68.3

2.4

Input Prices

42.9

41.9

+1.0

25.4

17(+)

45.4

52.1

2.5

Selling Prices

20.2

20.8

–0.6

5.7

14(+)

24.4

71.4

4.2

Capital Expenditures

12.4

16.1

–3.7

9.7

13(+)

16.9

78.6

4.5

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

Company Outlook

5.9

5.1

+0.8

5.4

14(+)

19.3

67.3

13.4

General Business Activity

8.3

5.4

+2.9

3.6

8(+)

23.3

61.7

15.0

IndicatorSep IndexAug IndexChangeSeries
Average
Trend*% Reporting Increase% Reporting
No Change
% Reporting Decrease

Outlook Uncertainty†

19.6

20.4

–0.8

11.0

4(+)

29.1

61.4

9.5

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

Revenue

44.4

44.7

–0.3

37.3

17(+)

54.6

35.2

10.2

Employment

36.2

36.9

–0.7

22.3

17(+)

43.0

50.1

6.8

Part–Time Employment

9.3

13.7

–4.4

6.7

16(+)

13.5

82.3

4.2

Hours Worked

7.5

14.1

–6.6

5.8

17(+)

12.4

82.7

4.9

Wages and Benefits

48.7

48.7

0.0

36.1

17(+)

51.2

46.3

2.5

Input Prices

53.1

47.8

+5.3

43.5

177(+)

55.4

42.3

2.3

Selling Prices

34.3

33.0

+1.3

23.1

17(+)

38.0

58.3

3.7

Capital Expenditures

27.7

27.6

+0.1

23.3

16(+)

33.8

60.1

6.1

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

Company Outlook

23.8

20.8

+3.0

16.8

14(+)

35.3

53.2

11.5

General Business Activity

24.4

23.0

+1.4

14.0

14(+)

36.7

51.0

12.3

Texas Retail Outlook Survey

September 28, 2021

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)
IndicatorSep IndexAug IndexChangeSeries
Average
Trend*% Reporting Increase% Reporting
No Change
% Reporting Decrease
Retail Activity in Texas

Sales

7.3

7.9

–0.6

5.5

2(+)

36.7

34.0

29.4

Employment

8.4

2.4

+6.0

1.8

2(+)

13.3

81.8

4.9

Part–Time Employment

6.5

3.5

+3.0

–1.9

7(+)

7.8

90.9

1.3

Hours Worked

9.2

4.6

+4.6

–2.0

2(+)

14.5

80.2

5.3

Wages and Benefits

24.6

24.2

+0.4

9.5

14(+)

29.3

66.0

4.7

Input Prices

50.1

41.3

+8.8

20.2

17(+)

54.3

41.5

4.2

Selling Prices

50.4

39.7

+10.7

11.8

16(+)

57.9

34.6

7.5

Capital Expenditures

10.6

12.6

–2.0

7.7

8(+)

16.7

77.2

6.1

Inventories

11.8

–6.4

+18.2

2.0

1(+)

29.8

52.2

18.0

Companywide Retail Activity

Companywide Sales

10.7

16.9

–6.2

7.1

7(+)

35.2

40.2

24.5

Companywide Internet Sales

–8.0

7.1

–15.1

5.9

1(–)

7.2

77.6

15.2

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

Company Outlook

2.4

–1.7

+4.1

3.6

1(+)

19.0

64.4

16.6

General Business Activity

10.0

8.5

+1.5

–0.1

7(+)

24.7

60.6

14.7

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

Outlook Uncertainty†

20.8

16.7

+4.1

9.1

4(+)

27.1

66.7

6.3

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

Sales

28.0

45.9

–17.9

32.6

17(+)

44.4

39.2

16.4

Employment

30.4

33.2

–2.8

12.8

17(+)

37.1

56.2

6.7

Part–Time Employment

10.8

25.5

–14.7

1.4

14(+)

14.3

82.2

3.5

Hours Worked

7.1

18.7

–11.6

3.0

17(+)

15.2

76.7

8.1

Wages and Benefits

47.8

52.1

–4.3

27.9

17(+)

51.2

45.3

3.4

Input Prices

48.9

45.5

+3.4

33.4

17(+)

55.3

38.3

6.4

Selling Prices

50.0

39.5

+10.5

29.4

17(+)

58.7

32.6

8.7

Capital Expenditures

15.2

25.5

–10.3

17.5

16(+)

26.1

63.0

10.9

Inventories

25.0

22.7

+2.3

9.9

17(+)

40.8

43.4

15.8

Companywide Retail Activity

Companywide Sales

32.1

53.3

–21.2

31.1

17(+)

45.1

41.9

13.0

Companywide Internet Sales

20.0

44.8

–24.8

22.6

18(+)

25.7

68.6

5.7

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

Company Outlook

18.8

36.8

–18.0

17.6

17(+)

32.6

53.6

13.8

General Business Activity

13.1

22.0

–8.9

13.4

14(+)

28.4

56.3

15.3

*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

September 28, 2021

Downloadable chart

Texas Retail Outlook Survey

September 28, 2021

Downloadable chart

Texas Service Sector Outlook Survey

September 28, 2021

Comments from Survey Respondents

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

Utilities

  • I believe that we are in a temporary lull and things will pick up in the fourth quarter.

Specialty Trade Contractors

  • Supply-chain issues are disrupting revenue.

Support Activities for Transportation

  • As players in the global supply chain, the global equipment imbalances and congestion at ports and terminals have a chokehold on our ability to generate revenue. If we are not moving, we are not generating revenue. We are not able to remain moving consistently due to global supply-chain issues, although the demand is at a peak.

Warehousing and Storage

  • The continued rise in COVID cases in Texas seems almost certain at some point to reduce our customers’ ability to provide product, and further worldwide demand reduction will limit the need, so our uncertainty has increased over what had previously looked like a very healthy economic recovery. As far as input prices, while the general view seems to be that inflation is going to be transitory, we don't expect it to moderate in the near term (next six months).

Publishing Industries (Except Internet)

  • In-person meetings as a practical alternative have faded again with the Delta variant. That limits in-person closing leverage on orders and puts budgets more at risk of delay. In addition, supply-chain issues and the inability to hire qualified workers at affordable costs has everyone more conservative in making decisions.

Data Processing, Hosting and Related Services

  • Inflation, increase in the cost to provide services and the lack of talented workers are the top concerns of the company right now.

Credit Intermediation and Related Activities

  • With the end of the CARES (Coronavirus Aid, Relief and Economic Security) Act, Paycheck Protection Program revenue will normalize. Business activity had increased, but the effect of COVID is starting to have an impact on some business activity. The supply chain for many items continues to create some issues with purchasing items.
  • A continued tight labor market and wage increase pressures are negatively impacting profit margins.
  • Regulations are increasing, interpretation of regulations is changing, and inflation is continuing to increase. All these factors decrease businesses’ ability to conduct profitable business.

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

  • [We face] increases in costs of making tenant improvements to commercial lease spaces without the ability to pass these costs through in the form of higher rental rates.
  • The labor situation is critical. We cannot grow anymore without additional labor force.
  • Issues around capital gains taxes are creating a lot of uncertainty and action. I'm getting a lot of calls from sellers of small businesses.
  • As a financial services company, we are impacted by, and closely monitor, economic and investment market changes.
  • The tight labor market is the top problem, but future tax increases are moving up as a major concern.

Insurance Carriers and Related Activities

  • We are still worried about the pandemic's effect on the economy, mostly driven by the "unvaccinated."

Real Estate

  • The continuing focus on COVID and the Delta variant I view as dampening optimism for the future. I believe any pending legislation on this issue will just divert attention from the infrastructure bill that would be a huge boon for the economy and for consumer sentiment that drives so much of our retail economy.
  • Our sales are better than last year, but the inventory continues to be tight. Prices for high-end properties continue to go up, causing concern from my agents.

Rental and Leasing Services

  • Obviously, as is everyone's No. 1 issue, we cannot get product to sell; we are ordering for 2023 right now! Our No. 2 issue is we cannot find anyone to work. Thanks to the government subsidies, people have saved money and maybe paid off all their credit card debt. They are living off their cash, credit and whatever our government [keeps] paying them not to work. Until they exhaust that pool, this generation isn't interested in going back to work. It is going to be a be a rude awakening when they decide they do need a job.

Professional, Scientific and Technical Services

  • [Gov. Greg Abbott] has signed laws/executive orders (abortion, "constitutional" carry of handguns and "no-mask mandates") that will work against companies doing business with Texas companies and any that are considering opening a business in Texas.
  • The business climate is not improving as we expected. Things are getting worse it seems. We increased software support prices for the first time in 12 years to get more revenue from existing and new customers.
  • Working in person continues to present challenges due to the Delta variant (and possible new variants) and a desire by many employees to continue working remotely more because of convenience than health concerns. Employers will soon have to adopt policies that may well represent an office environment with a substantial remote-working component. This in turn will have serious repercussions to providers of goods and services to those businesses.
  • Some uncertainty is creeping in although we are trying to remain optimistic for now. We will continue to monitor demand closely as the year progresses. August was slightly slower when we would have liked, but [activity] evened out in September. Now all eyes are on the fourth quarter and how year-end shapes up.
  • The residential and commercial real estate markets are on fire! The commercial market is being fueled by low interest rates and the fear of what the capital gains rate will be next year. The residential market is being fueled by lack of supply and low interest rates as well. The first quarter of next year will give us a good indication of where the real estate market is going to land, but we feel confident that it will remain robust.
  • We are an automotive Tier 2 company. The chip shortage crisis has hit us hard. This is the fifth week that we are down because of low volumes.
  • We continue to struggle with entry-level labor. Despite all efforts, we have been unable to reach full staffing levels since last fall.
  • COVID is still wreaking uncertainty on the courts, although they have been able to pivot more with the proficiency of Zoom proceedings, allowing more trials and business to move forward. In-person proceedings are hit and miss (about 25 percent go forward).

Management of Companies and Enterprises

  • The current White House administration and related impact on personal and corporate income taxes is creating major uncertainty and has definitely negatively impacted future hiring.
  • We need to get people back to work to cure the supply chain. We are now having problems hiring people because of all the government money that has been sent to them.
  • With 2022 proposed income taxes and removal of or edits to the 1031 [tax-advantaged real estate] exchange, prices should come down on investment grade assets, which is a lot of what we do.

Administrative and Support Services

  • Seeing continued strengthening in clients’ financial performance. PPP [Paycheck Protection Program] forgiveness is adding additional capital to the equation and serving as an added stimulus. Clients have more discretionary capital.
  • We are very concerned about the labor market. We are very concerned with the out-of-control spending by Congress. The bills before Congress are insane and will destroy the economy and likely the country. Especially new taxes! We are concerned about illegal immigration. If these people are here, why are they not working? Or in the labor pool? It's getting out of control.
  • The demand for labor is fueling our growth; however, the shortage of labor is hampering our ability to grow. Finding new candidate engagement and sourcing tools to spark conversations with passive candidates thinking about a job change is more important than ever. We are adding automation tools that use AI [artificial intelligence] to provide front-end interactions with potential candidates in an effort to strengthen our pool of candidates and allow our recruiters to focus more on the personal conversations with professionals.

Waste Management and Remediation Services

  • Filling positions with people who want to work, who show up and who are committed to staying with the company is challenging. The turnover of new employees is extremely high. If new hires don't follow best practices and violate company policies, your choice is to let them go and slog through the challenging hiring process, or keep someone that fills an opening on assembly line.

Educational Services

  • We are seeing more positive COVID cases as students return, which is worrying, but we are hopeful that it is near the peak and will begin to decrease.

Ambulatory Health Care Services

  • We hadn't been hit by employee turnover during/after the COVID outbreak but had our first case of "poaching" by another dental practice this month and are experiencing the shortage of available replacements for a high-skill position.
  • Monthly economics limerick: Brilliant work due to Federal Reserve expertise; purchase/sell/raise rates/or continue with ease? eco[nomic] growth can be strong; due to issues of COVID long; stop the nonsense with the fed gov [federal government], if you please.
  • The world is on fire; lots of anxiety among patients and employees. The vaccine mandate recently proclaimed by President Biden is a challenge; I have two physician members and about 30 employees who will not accept the vaccine. Most have had COVID previously and/or are very young and afraid of potential risks. One of our young employees, a 23-year-old female, experienced unstable ventricular tachycardia necessitating a 9-1-1 call a day after the second vaccination; lab tests demonstrated massive clotting. She has fully recovered. I hope that a combination of natural immunity, vaccination or regular testing is eventually accepted. (Green Pass in Israel uses these criteria.)

Accommodation

  • The Delta variant is impacting hospitality.
  • Unfortunately, we were seeing cancellation of group business in Q4 2021 and Q1 2022, primarily due to the Delta variant of COVID. Groups are getting very low responses from potential attendees. In the last week, the new legislation regarding abortion and restricted voting rights have been a topic of discussion with groups. (As of this date, no group has canceled citing this reason.) With the LGBTQ [lesbian, gay, bisexual, transgender and questioning and/or queer] question regarding participation in athletics, this will be a third divisive issue customers will want to discuss. Hopefully, the positivity rates will start to decrease, and we will see groups move forward with their plans. From a leisure perspective, with schools back in session, demand has dropped. [There are] No signs of business travel.

Food Services and Drinking Places

  • While we still believe and hope that this inflation/lack of labor is a temporary dislocation, the longer it persists, the stickier it will become. Governments need to reduce barriers to full employment, including losing these vaccine mandates and unemployment benefits. Additionally, unfriendly tax policies being discussed will reduce future capital spending and investment.
  • Uncertainty with the Delta variant, crazy price increases, shortages, supply-chain issues for deliveries and shortages of employees make for an awful work environment. Customers don’t understand what is happening.
  • Huge cancellations and slowed business—COVID, COVID, COVID. Giant supply-chain issues—COGS [cost of goods sold] are high if we can even find items.
  • Delta's effect on business travel and meetings continues to be a drag on our business. Hiring employees is improving somewhat, but we're still far below our need and continue to turn away business because we can't fully staff.
  • The actions of the government are becoming worrisome for business owners and causing uncertainty.

Repair and Maintenance

  • [We are experiencing] supply-chain issues.

Religious, Grantmaking, Civic, Professional and Similar Organizations

  • The U.S. should seriously consider biotechnology as a solution to controlling COVID-19.

Merchant Wholesalers, Durable Goods

  • Our increase in revenue in September versus August is related to the use of our products for clean-up efforts related to Hurricane Ida. Our outlook six months from now has worsened as the political agenda to frivolously spend and increase taxes has me concerned about my ability to continue to invest in growth at the pace we have been investing.
  • We have to stop spending to get out of this. Right now, we should just take the hit so we can start to recover.
  • We have finally seemed to have found the balance between hiring/wages; however, we are still close to 10 percent off [from] being fully staffed. On hiring/staffing, this is the best outlook we have had in close to two years. Transportation is the main limiting factor we face in output. Product is available to ship but both road and rail are the pinch point. This is the worst transportation shortage we have ever experienced. We do not expect there to be any immediate solution. We see this as a great threat to our economy in general. Action needs to be taken.

Merchant Wholesalers, Nondurable Goods

  • As long as COVID is front-page news, it will generate uncertainty in the restaurant business. Ironically, if the first round of vaccine doesn't work to the degree it was expected, I can't imagine a booster of the same formula will have a different outcome. That's the definition of insanity.
  • Supply-chain issues are hurting our business.
  • Most of our business activity is steady to a little better, but sales per transaction have increased by almost 10 percent. Also traffic patterns have changed as more people are out and about.

Motor Vehicle and Parts Dealers

  • Low inventory due to the chip shortage continues to limit our sales volume. Demand is good, but supply is inadequate.
  • We are seeing "consumer pushback" on the high cost of new and used vehicles.
  • [We are seeing] supply-chain and continued COVID issues.
  • Lack of inventory and parts have hampered sales.
  • Microchip and other supply-chain issues have severely impacted the automobile business. New-car inventories are less than 15 days’ supply currently, with little optimism for near-term improvement.

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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